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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 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

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1417.

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Length: 26 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:kie:kieliw:1417

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Keywords: international services outsourcing; innovation; R&D;

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References

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  1. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 168, Research Institute for Economics & Business Administration, Kobe University.
  2. 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.
  3. 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.
  4. Criscuolo, Chiara & Haskel, Jonathan E. & Slaughter, Matthew J., 2010. "Global engagement and the innovation activities of firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(2), pages 191-202, March.
  5. Dermot Leahy & Catia Montagna, 2006. "'Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 197, Economic Studies, University of Dundee.
  6. 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.
  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. 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.
  9. Alexander Hijzen, & Tomohiko Inui, & Yasuyuki Todo, . "Does Offshoring Pay? Firm-Level Evidence From Japan," Discussion Papers 07/14, University of Nottingham, GEP.
  10. 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.
  11. Sinn, Hans-Werner, 2006. "The pathological export boom and the bazaar effect: How to solve the German puzzle," Munich Reprints in Economics, University of Munich, Department of Economics 19602, University of Munich, Department of Economics.
  12. repec:hrv:faseco:4784029 is not listed on IDEAS
  13. 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.
  14. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2005, Harvard - Institute of Economic Research.
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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," IZA Discussion Papers 3334, Institute for the Study of Labor (IZA).
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Eckhardt Bode & Franz-Josef Bade Bade & Eleonora Cutrini Cutrini, 2011. "Domestic and International Offshoring of Tasks," ERSA conference papers ersa11p1840, European Regional Science Association.
  7. 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.
  8. Bartel, Ann P. & Lach, Saul & Sicherman, Nachum, 2009. "Outsourcing and Technological Change," IZA Discussion Papers 4678, Institute for the Study of Labor (IZA).
  9. Tillmann Schwörer, 2012. "Offshoring, Domestic Outsourcing, and Productivity: Evidence for a Number of European Countries," Kiel Working Papers, Kiel Institute for the World Economy 1786, Kiel Institute for the World Economy.
  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, Camera di Commercio di Genova, vol. 64(3), pages 269-296.
  11. 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.
  12. 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.
  13. 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.
  14. Rosario Crinò, 2010. "Service Offshoring and the Skill Composition of Labor Demand," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 802.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  15. 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.
  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. 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.
  19. 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.

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