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Market Thickness, Sunk Entry Costs, Firm Heterogeneity and the Outsourcing Decision: Empirical Evidence of Manufacturing Firms in France

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  • Liza Jabbour

Abstract

In this paper I investigate, empirically, the outsourcing strategy by firms in French manufacturing industries. I particularly focus on the effect of the market thickness and of firm heterogeneity on the outsourcing strategy. For this purpose, I estimate a dynamic probit model where I link the decision to outsource to previous outsourcing behaviour. I am able to estimate the sunk entry costs incurred by the firms when adopting an outsourcing strategy. The results show that outsourcing is a persistent strategy adopted by more productive firms and larger ones. They also show that market thickness reduces search costs and enhances the establishment of outsourcing relationships.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2008/08-20.pdf
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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/20.

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Handle: RePEc:not:notgep:08/20

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/gep/index.aspx
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Keywords: Outsourcing; Firm Heterogeneity; Dynamic Binary Choice Models; Market Thickness;

References

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  1. Adelheid Holl, 2007. "Production Subcontracting and Location," Working Papers 2007-17, FEDEA.
  2. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
  3. 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, vol. 15(3), pages 267-286, December.
  4. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
  5. 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.
  6. Holger Görg & Aoife Hanley & Eric Strobl, 2008. "Productivity effects of international outsourcing: evidence from plant-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 670-688, May.
  7. repec:hrv:faseco:4784029 is not listed on IDEAS
  8. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  9. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  10. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  11. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  12. Angela Triguero, & Carmen Díaz Mora, . "Why do some firms contract out production?," Studies on the Spanish Economy 232, FEDEA.
  13. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  14. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers 1996_21, Columbia University, Department of Economics.
  15. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  16. Stewart, Mark, 2006. "The Inter-related Dynamics of Unemployment and Low-Wage Employment," The Warwick Economics Research Paper Series (TWERPS) 741, University of Warwick, Department of Economics.
  17. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  18. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
  19. Liza Jabbour, . "“Slicing the Value Chain” Internationally: Empirical Evidence on the Offshoring Strategy by French Firms," Discussion Papers 08/02, University of Nottingham, GEP.
  20. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
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