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Outsourcing and Firm Productivity in Irish Manufacturing

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  • Fergal McCann
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    Abstract

    The causality from outsourcing, defined as the procurement of inputs from outside the boundaries of the firm, to productivity is tested for a large panel of Irish manufacturing firms. Theory suggests that as firms outsource more 'non-core' activities to specialized providers, productivity due to the firm benefiting from cheaper or higher-quality inputs and from reallocation of resources towards higher value-added activities. The international outsourcing case adds another dimension in the form of input variety, quality and technological embeddedness. I test the above hypothesis using a "System GMM" estimator to control for endogeneity in the panel and allow for a lagged dependent variable to be a regressor. International outsourcing is found to lead to productivity gains, but upon closer inspection it seems that firms? international orientation and type of industry both matter.

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    Bibliographic Info

    Paper provided by FIW in its series FIW Working Paper series with number 021.

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    Length: 28
    Date of creation: Jan 2009
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    Handle: RePEc:wsr:wpaper:y:2009:i:021

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    Related research

    Keywords: Outsourcing; Productivity; Firm Structure;

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    1. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    2. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
    3. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
    4. Kimura, Fukunari & Takahashi, Yuya & Hayakawa, Kazunobu, 2007. "Fragmentation and parts and components trade: Comparison between East Asia and Europe," The North American Journal of Economics and Finance, Elsevier, vol. 18(1), pages 23-40, February.
    5. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    6. Falk, Martin & Wolfmayr, Yvonne, 2008. "Services and materials outsourcing to low-wage countries and employment: Empirical evidence from EU countries," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 38-52, March.
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    12. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers 1996_21, Columbia University, Department of Economics.
    13. Bernd Görzig & Andreas Stephan, 2002. "Outsourcing and Firm-level Performance," Discussion Papers of DIW Berlin 309, DIW Berlin, German Institute for Economic Research.
    14. Catherine L. Mann, 2003. "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," Policy Briefs PB03-11, Peterson Institute for International Economics.
    15. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 817-832, November.
    16. Gorg, Holger & Hanley, Aoife, 2005. "International outsourcing and productivity: evidence from the Irish electronics industry," The North American Journal of Economics and Finance, Elsevier, vol. 16(2), pages 255-269, August.
    17. Lee Branstetter & C. Fritz Foley, 2007. "Facts and Fallacies about U.S. FDI in China," NBER Working Papers 13470, National Bureau of Economic Research, Inc.
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