OUTSOURCING VS OFFSHORING

Offshoring is preferred in this paper because outsourcing may refer to domestic transactions while leaving out some offshore transactions that are directly of interest. Outsourcing means the purchase by a firm of a good or service that could be produced in-house from another firm, which may or may not be located in the same country.
For example, a U.S. firm could be outsourcing to another firm within the U.S. — that would be outsourcing, but not offshoring. Conversely, many offshore movements of work are under the roof of the same multinational company—for example, from a U.S. firm to its subsidiary in India. Those would not necessarily be called outsourcing (because no “second-party” is involved, all within the same firm), but would be a case of offshoring.
The definition above does not specify whether the country that provides the offshored service is a developing or an advanced economy. Accordingly, sending work to Germany would be counted as offshoring by that measure. This is an area where the definition above has a disadvantage, because offshoring concerns are very often related to the competition from low-wage countries — expensive labor in other advanced economies is not considered a challenge to U.S. workers.
Therefore, it might have been preferable to limit the offshoring concept to cases where the service provider is a developing country, but, as a practical matter, it is not always possible to identify the country of the trading partner in the data.