Size Evolution and Outsourcing: Theory and Evidence from Australian Manufacturing
AbstractThis paper sheds new light on the forces shaping outsourcing decision by considering a certain form of non-linearity in overhead costs which effectively discretizes a firm’s size into small and large regimes. Extending Grossman & Helpman (2002) in this line shows that firms unable to fully transition from small to large due to their level of efficiency would outsource to downsize and save on overhead costs. A panel of Australian manufacturing firms is used to construct an instrument for the transitioning firm and to test the hypothesis. In support of the theory, those firms in transition with no growth plans have stronger incentives to contract out and downsize. The findings open a new avenue to rethink growth and job creation amongst small businesses.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-08.
Length: 37 pages
Date of creation: Oct 2011
Date of revision:
Contact details of provider:
Postal: Australian School of Business Building, Sydney 2052
Fax: +61)-2- 9313- 6337
Web page: http://www.economics.unsw.edu.au/
More information through EDIRC
Small Business; productivity; outsourcing; Overhead Cost.;
Find related papers by JEL classification:
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- L6 - Industrial Organization - - Industry Studies: Manufacturing
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