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Outsourcing, Complementary Innovations and Growth

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Author Info
Alireza Naghavi ()
Gianmarco I.P. Ottaviano ()

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Abstract

This paper studies the parallel creation of complementary upstream and downstream innovations by independent labs to shed light on the impact of outsourcing on R&D when supply contracts are incomplete. In particular, we argue that outsourced upstream production contributes to the emergence of innovation networks by creating a demand for upstream R&D. We then analyze under which conditions this leads to faster innovation than in the case of vertically integrated production relying on integrated R&D. In the presence of incomplete supply contracts, the ex-post bargaining power of upstream and downstream parties feeds back to innovation. This determines whether outsourcing decisions leading to static gains from specialized production generate or not also dynamic gains in terms of faster innovation.

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File URL: http://www.recent.unimore.it/wp/RECent-wp19.pdf
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Publisher Info
Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 019.

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Length: pages 23
Date of creation: May 2008
Date of revision:
Handle: RePEc:mod:recent:019

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Web page: http://www.recent.unimore.it/
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Related research
Keywords: outsourcing; complementary innovations; incomplete contracts; organization of firms;

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Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
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  2. Marin, Dalia & Verdier, Thierry, 2002. "Globalization and the 'New Enterprise'," CEPR Discussion Papers 3640, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Outsourcing, Contracts and Innovation Networks," CEPR Discussion Papers 5681, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
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  5. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August. [Downloadable!] (restricted)
  6. Edwin Lai & Raymond Riezman & Ping Wang, 2009. "Outsourcing of innovation," Economic Theory, Springer, vol. 38(3), pages 485-515, March. [Downloadable!] (restricted)
  7. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  9. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  10. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November. [Downloadable!] (restricted)
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  11. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Ottaviano, Gianmarco Ireo Paolo, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ottaviano, Gianmarco Ireo Paolo, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Offshoring and Product Innovation," CEPR Discussion Papers 6008, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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