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Efficiency and Outsourcing: Evidence from Australian Manufacturing

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  • Sasan Bakhtiari

    ()
    (School of Economics, The University of New South Wales)

Abstract

This paper studies the role of efficiency in a firm’s decision to contract out. Emphasis is on the heterogeneous nature of firms and when firms are only considering outsourcing to domestic suppliers. Firm-level data on Australian manufacturing reveal an ordering of efficiency between firms that contract out and those that do not, in which contracting-out firms are on aggregate less efficient. The analysis further shows that firms experience improvement in their efficiency soon after contracting out, but only if their performance has been below average prior to contracting out. The results show robustness to the choice of efficiency measure, where efficiency is expressed in both productivity and cost advantage.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-07.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-07.

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Length: 18 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:swe:wpaper:2012-07

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Related research

Keywords: Outsourcing; Productivity; Cost Advantage; Manufacturing.;

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References

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  1. Robert Breunig & Marn-Heong Wong, 2008. "A Richer Understanding of Australia's Productivity Performance in the 1990s: Improved Estimates Based Upon Firm-Level Panel Data," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 157-176, 06.
  2. Wilhelm Kohler & Marcel Smolka, 2009. "Global Sourcing Decisions and Firm Productivity: Evidence from Spain," CESifo Working Paper Series 2903, CESifo Group Munich.
  3. 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.
  4. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
  5. Dube, Arindrajit & Kaplan, Ethan, 2008. "Does Outsourcing Reduce Wages in the Low Wage Service Occupations? Evidence from Janitors and Guards," Institute for Research on Labor and Employment, Working Paper Series qt6s89498v, Institute of Industrial Relations, UC Berkeley.
  6. José C. Fariñas & Ana Martín-Marcos, 2010. "Foreign Sourcing and Productivity: Evidence at the Firm Level," The World Economy, Wiley Blackwell, vol. 33(3), pages 482-506, 03.
  7. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer, vol. 37(1), pages 47-63, February.
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Cited by:
  1. Sasan Bakhtiari, 2011. "Size Evolution and Outsourcing: Theory and Evidence from Australian Manufacturing," Discussion Papers 2012-08, School of Economics, The University of New South Wales.

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