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Services Outsourcing And Innovation: An Empirical Investigation

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  • HOLGER GÖRG
  • AOIFE HANLEY

Abstract

We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing of services, but the magnitude is smaller. This makes intuitive sense, as international outsourcing allows more scope for exploiting international factor price differentials, therefore giving the establishment higher profits and more scope to restructure production activities towards innovation. We also find that international services outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 49 (2011)
Issue (Month): 2 (04)
Pages: 321-333

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Handle: RePEc:bla:ecinqu:v:49:y:2011:i:2:p:321-333

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References

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  1. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4170, C.E.P.R. Discussion Papers.
  2. Dermot, Leahy & Catia, Montagna, 2007. "‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure," MPRA Paper 7468, University Library of Munich, Germany.
  3. Chiara Criscuolo & Jonathan E. Haskel & Matthew J. Slaughter, 2005. "Global Engagement and the Innovation Activities of Firms," NBER Working Papers 11479, National Bureau of Economic Research, Inc.
  4. Bartel, Ann P & Lach, Saul & Sicherman, Nachum, 2005. "Outsourcing and Technological Change," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5082, C.E.P.R. Discussion Papers.
  5. Ingo Geishecker & Holger Görg, 2008. "Winners and losers: a micro-level analysis of international outsourcing and wages," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 41(1), pages 243-270, February.
  6. Alexander Hijzen, & Tomohiko Inui, & Yasuyuki Todo, . "Does Offshoring Pay? Firm-Level Evidence From Japan," Discussion Papers 07/14, University of Nottingham, GEP.
  7. Kohn, Meir & Scott, John T, 1982. "Scale Economies in Research and Development: The Schumpeterian Hypothesis," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 30(3), pages 239-49, March.
  8. Mark Cassidy & Holger Görg & Eric Strobl, 2005. "Knowledge Accumulation, And Productivity: Evidence From Plant-Level Data For Ireland," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 52(3), pages 344-358, 07.
  9. Swenson, Deborah L., 2004. "Entry costs and outsourcing decisions: evidence from the U.S. overseas assembly provision," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 15(3), pages 267-286, December.
  10. Hans-Werner Sinn, 2006. "The Pathological Export Boom and the Bazaar Effect - How to Solve the German Puzzle," CESifo Working Paper Series 1708, CESifo Group Munich.
  11. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, Elsevier, vol. 72(1), pages 113-127, May.
  12. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, Elsevier, vol. 45(1), pages 67-86, January.
  13. Amiti, Mary & Wei, Shang-Jin, 2006. "Service Offshoring, Productivity and Employment: Evidence from the US," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5475, C.E.P.R. Discussion Papers.
  14. repec:hrv:faseco:4784029 is not listed on IDEAS
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Citations

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Cited by:
  1. Bartel, Ann P & Lach, Saul & Sicherman, Nachum, 2008. "Outsourcing and Technological Innovations: A Firm-Level Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6731, C.E.P.R. Discussion Papers.
  2. Bianka Dettmer, 2012. "Business services outsourcing and economic growth: Evidence from a dynamic panel data approach," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2012-049, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Franz-Josef Bade & Eckhardt Bode & Eleonora Cutrini, 2012. "Spatial fragmentation of industries by functions," Working Papers, Macerata University, Department of Studies on Economic Development (DiSSE) 39-2012, Macerata University, Department of Studies on Economic Development (DiSSE), revised Feb 2012.
  4. Peukert, Christian, 2011. "External technology supply and client-side innovation," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-082, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Martin Borowiecki & Bernhard Dachs & Doris Hanzl-Weiss & Steffen Kinkel & Johannes Pöschl & Magdolna Sass & Thomas Christian Schmall & Robert Stehrer & Andrea Szalavetz, 2012. "Global Value Chains and the EU Industry," wiiw Research Reports 383, The Vienna Institute for International Economic Studies, wiiw.
  6. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc.
  7. Wignaraja, Ganeshan & Krüger, Jens & Tuazon, Anna Mae, 2013. "Production Networks, Profits, and Innovative Activity: Evidence from Malaysia and Thailand," ADBI Working Papers, Asian Development Bank Institute 406, Asian Development Bank Institute.
  8. Fergal McCann, 2011. "The heterogeneous effect of international outsourcing on firm productivity," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 147(1), pages 85-108, April.
  9. Rosario Crinò, 2012. "Service Offshoring and the Skill Composition of Labour Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 74(1), pages 20-57, 02.
  10. Beretta, Silvio & Targetti Lenti, Renata, 2011. "“India in the Outsourcing/Offshoring Process: A Western Perspective” - L’India nel processo di outsourcing/offshoring: un punto di vista occidentale," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(3), pages 269-296.
  11. Magdolna Sass & Miklos Szanyi, 2012. "Two essays on Hungarian relocations," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1223, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  12. Tillmann Schwörer, 2012. "Offshoring, Domestic Outsourcing, and Productivity: Evidence for a Number of European Countries," Kiel Working Papers 1786, Kiel Institute for the World Economy.
  13. Nuttapon Photchanaprasert, 2011. "Innovation and Production Offshoring: Implications on Welfare," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd10-185, Institute of Economic Research, Hitotsubashi University.
  14. Eckhardt Bode & Franz-Josef Bade Bade & Eleonora Cutrini Cutrini, 2011. "Domestic and International Offshoring of Tasks," ERSA conference papers ersa11p1840, European Regional Science Association.
  15. Rasel, Fabienne, 2012. "Offshoring and ICT: Evidence for German manufacturing and service firms," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-087, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Sdiri, Hanen & Ayadi, Mohamed, 2012. "Innovation et externalisation des services: une analyse empirique sur données d'entreprises tunisiennes
    [Innovation and outsourcing of services: a firm-level analysis]
    ," MPRA Paper 39359, University Library of Munich, Germany.
  17. Deschryvere, Matthias & Kotiranta, Annu, 2008. "Domestic Employment Effects of Offshoring: Empirical Evidence from Finland," Discussion Papers, The Research Institute of the Finnish Economy 1166, The Research Institute of the Finnish Economy.
  18. Kang, Moonsung & Kim, Hyuk Hwang & Lee, Hongshik & Lee, Joonhyung, 2010. "Regional production networks, service offshoring, and productivity in East Asia," Japan and the World Economy, Elsevier, Elsevier, vol. 22(3), pages 206-216, August.
  19. Bertschek. Irene & Erdsiek, Daniel, 2012. "IT outsourcing - A source of innovation? Microeconometric evidence for Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-088, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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