Why do some firms contract out production?

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Why do some firms contract out production?

Author Info

Angela Triguero,
Carmen Díaz Mora

Abstract

The present paper examines which factors determine outsourcing decision using firm-level panel data for Spanish manufacturing industries. Outsourcing is measured as the manufacture of custom-made finished products or parts and components which have been contracted out to third parties. Moreover, we distinguish whether the main contractor provides the materials to the external supplier or not. Following the theoretical framework of Grossman and Helpman (2002), we take into account the persistence of outsourcing decision as well as other firm, industry and market characteristics that influence the likelihood of contracting out. Using a dynamic panel data probit model, our results show that previous subcontracting decision, wages, market changes, R&D activities, product and process innovation, product differentiation, industry-size and exporter status affect positively the current subcontracting decision.

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Paper provided by FEDEA in its series Studies on the Spanish Economy with number 232.

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Handle: RePEc:fda:fdaeee:232

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This paper has been announced in the following NEP Reports:

NEP-ALL-2007-03-24 (All new papers)
NEP-BEC-2007-03-24 (Business Economics)
NEP-CSE-2007-03-24 (Economics of Strategic Management)
NEP-INO-2007-03-24 (Innovation)

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Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 817-832, November. [Downloadable!] (restricted)
Other versions:
- Sourafel Girma & Holger Görg, 2003. "Outsourcing, Foreign Ownership and Productivity: Evidence from UK Establishment Level Data," Discussion Papers of DIW Berlin 361, DIW Berlin, German Institute for Economic Research. [Downloadable!]
Ono, Yukako, 2003. "Outsourcing business services and the role of central administrative offices," Journal of Urban Economics, Elsevier, vol. 53(3), pages 377-395, May. [Downloadable!] (restricted)
Kimura, Fukunari & Ando, Mitsuyo, 2005. "Two-dimensional fragmentation in East Asia: Conceptual framework and empirics," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 317-348. [Downloadable!] (restricted)
Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November. [Downloadable!] (restricted)
Other versions:
- Haucap, Justus & Buehler, Stefan, 2003. "Strategic Outsourcing Revisited," Working Paper 15/2003, Helmut Schmidt University, Hamburg. [Downloadable!]
- Stefan Buehler & Justus Haucap, 2003. "Strategic Outsourcing Revisited," Working Papers 0305, University of Zurich, Socioeconomic Institute. [Downloadable!]
Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July. [Downloadable!] (restricted)
Other versions:
- Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February. [Downloadable!] (restricted)
Görg, Holger & Hanley, Aoife, 2004. "Does Outsourcing Increase Profitability?," IZA Discussion Papers 1372, Institute for the Study of Labor (IZA). [Downloadable!]
Other versions:
- Holger Görg & Aoife Hanley, 2004. "Does Outsourcing Increase Profitability?," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 267-288. [Downloadable!]
Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, 04. [Downloadable!] (restricted)
Other versions:
- J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
- Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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