Outsourcing and Technological Innovations: A Firm-Level Analysis
AbstractThis paper presents a dynamic model that analyzes how firms’ expectations with regards to technological change influence the demand for outsourcing. We show that outsourcing becomes more beneficial to the firm when technology is changing rapidly. As the pace of innovations in production technology increases, the firm has less time to amortize the sunk costs associated with purchasing the new technologies. This makes producing in-house with the latest technologies relatively more expensive than outsourcing. The model therefore provides an explanation for the recent increases in outsourcing that have taken place in an environment of increased expectations for technological change. We test the predictions of the model using a panel dataset on Spanish firms for the period 1990 through 2002. The empirical results support the main prediction of the model, namely, that all other things equal, the demand for outsourcing increases with the probability of technological change.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6731.
Date of creation: Mar 2008
Date of revision:
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- Bartel, Ann P. & Lach, Saul & Sicherman, Nachum, 2008. "Outsourcing and Technological Innovations: A Firm-Level Analysis," IZA Discussion Papers 3334, Institute for the Study of Labor (IZA).
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-BEC-2008-04-12 (Business Economics)
- NEP-CSE-2008-04-12 (Economics of Strategic Management)
- NEP-INO-2008-04-12 (Innovation)
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