Offshoring as a Survival Strategy: Evidence from firms in Belgian Manufacturing

Abstract

This paper analyzes the impact of globalization on the exit behavior of manufacturing firms in Belgium. Imports from low-wage countries are found to exert a strong competitive effect, which raises the likelihood of exit of firms in industries where intra-industry trade is relatively low. Similar to import competition, growing penetration by multinational firms in the industry has an equally strong competitive impact on the likelihood of exit of domestic firms. However, Belgian firms that offshore activities to non-European Union countries are able to substantially improve their chances of survival. This also holds for subsidiaries of multinational enterprises operating in Belgium. Unlike domestic firms, the likelihood of exit of subsidiaries of multinational enterprises is found to be less sensitive to domestic market conditions in the host country.