Industry dynamics of offshoring: The case of hard disk drives

Abstract

This paper uncovers a novel pattern of offshoring dynamics in a high-tech industry, and proposes a structural model to explain it. Specifically, the hard disk drive industry (1976-1998) witnessed massive waves of entry, exit, and the relocation of manufacturing plants to low-cost countries, in which shakeouts occurred predominantly among home firms and almost all survivors were offshore firms. I build and estimate a dynamic offshoring game with entry/ exit to measure the benefits and costs of offshoring, investigate the relationship between offshoring and market structure, and assess the impacts of hypothetical government interventions.