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Foreign versus domestic outsourcing: Firm-level evidence on the role of technology

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  • Tomiura, Eiichi

Abstract

The decision about where to outsource varies across firms and industries. General machinery heavily depends on domestic subcontractors, while outsourcing overseas is prevalent in apparel. Based on firm-level data explicitly distinguishing foreign outsourcing from domestic outsourcing in all manufacturing industries, this paper finds that firms tend to prefer domestic outsourcing to foreign outsourcing when they are R&D-intensive. This finding is consistent with incomplete contracting models, since technologically complex products are likely to require high-quality contracting environment and assembler-supplier proximity. This paper also finds that firms connected with computer networks are actively outsourcing.

Suggested Citation

  • Tomiura, Eiichi, 2009. "Foreign versus domestic outsourcing: Firm-level evidence on the role of technology," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 219-226, March.
  • Handle: RePEc:eee:reveco:v:18:y:2009:i:2:p:219-226
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    References listed on IDEAS

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    1. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
    2. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    3. Pol Antràs, 2005. "Incomplete Contracts and the Product Cycle," American Economic Review, American Economic Association, vol. 95(4), pages 1054-1073, September.
    4. Gene M. Grossman & Elhanan Helpman, 2005. "Outsourcing in a Global Economy," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 135-159.
    5. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, vol. 95(2), pages 19-24, May.
    6. repec:hrv:faseco:4784029 is not listed on IDEAS
    7. Pol Antràs & Elhanan Helpman, 2006. "Contractual Frictions and Global Sourcing," NBER Working Papers 12747, National Bureau of Economic Research, Inc.
    8. Oz Shy & Rune Stenbacka, 2005. "Partial outsourcing, monitoring cost, and market structure," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1173-1190, November.
    9. 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.
    10. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1375-1418.
    11. Robert C. Feenstra & Barbara J. Spencer, 2005. "Contractual Versus Generic Outsourcing: The Role of Proximity," NBER Working Papers 11885, National Bureau of Economic Research, Inc.
    12. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
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    Citations

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    Cited by:

    1. Liza Jabbour & Maria Pluvia Zuniga, "undated". "Drivers of the Offshore Outsourcing of R&D: Empirical Evidence from French Manufacturers," Discussion Papers 09/04, University of Nottingham, GEP.
    2. Angela Triguero, & Carmen DÌaz Mora, "undated". "Why do some firms contract out production?," Studies on the Spanish Economy 232, FEDEA.
    3. Valeria Gattai & Valentina Trovato, 2014. "Estimating sourcing premia with Italian regional data," Working Papers 276, University of Milano-Bicocca, Department of Economics, revised Jun 2014.
    4. Mukherjee, Arijit & Tsai, Yingyi, 2013. "Multi-sourcing as an entry deterrence strategy," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 108-112.
    5. Luigi Pascali, 2009. "Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis," Boston College Working Papers in Economics 727, Boston College Department of Economics.
    6. Liza Jabbour & Pluvia Zuniga, 2016. "The Outsourcing of Research and Development in Global Markets: Evidence from France," The World Economy, Wiley Blackwell, vol. 39(3), pages 339-368, March.
    7. Gattai Valeria & Trovato Valentina, 2016. "Estimating Sourcing Premia Using Italian Regional Data," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1029-1067, April.
    8. Tomohiro Ara, 2014. "Global Sourcing in Industry Equilibrium," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 93-115, March.

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