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Subcontracting, R&D And Labour Productivity: A Theoretical Explanation

Author

Listed:
  • Dibyendu Maiti

    () (Faculty of Business and Economics, The University of the South Pacific)

  • Sugata Marjit

    (Centre for Studies in Social Sciences)

Abstract

While a large body of researches discusses the effects of international subcontracting on firm dynamics, the present work deals with the similar issues of a domestic firm who subcontracts to the informal sector in a typical developing world. Theoretically, we develop a model that if the formal sector wage is higher than that of informal sector, the choice of informal sector subcontracting and in-house R&D investment appears to be alternative options to the firm to bypass expensive labour in the formal sector. We argue that the R&D and labour productivity in formal sector are highly influenced by the informal wage but not the formal sector one. Since the subcontracting can raise both supply and demand for informal workers due to a rise of formal sector wage, the movement of informal sector wage is uncertain and thereby, the formal sector R&D and labour-productivity are also ambiguous. Thus, countries with a vast segment of lowly-paid informal workers exhibit lowly-productive formal workers.

Suggested Citation

  • Dibyendu Maiti & Sugata Marjit, 2011. "Subcontracting, R&D And Labour Productivity: A Theoretical Explanation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(3), pages 1-24, September.
  • Handle: RePEc:jed:journl:v:36:y:2011:i:3:p:1-24
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    File URL: http://www.jed.or.kr/full-text/36-3/1.pdf
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    References listed on IDEAS

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    4. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, pages 463-496.
    5. Marjit, Sugata & Ghosh, Sudeep & Biswas, Amit, 2007. "Informality, corruption and trade reform," European Journal of Political Economy, Elsevier, vol. 23(3), pages 777-789, September.
    6. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    7. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
    8. Dibyendu Maiti & Sugata Marjit, 2008. "Trade liberalization, production organization and informal sector of the developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(3), pages 453-461.
    9. Alexei G. Orlov & John Roufagalas, 2008. "Capital-Labor Complementarities In R&D Production And The Lingering Effects Of Economic Slowdowns," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 33(1), pages 1-25, June.
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    Citations

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    Cited by:

    1. Maiti, Dibyendu & Mukherjee, Arijit, 2013. "Trade cost reduction, subcontracting and unionised wage," Labour Economics, Elsevier, vol. 21(C), pages 103-110.
    2. Simontini Das & Ajitava Raychaudhuri & Saikat Sinha Roy, 2012. "Immigration Versus Outsourcing: A Developing Country¡¯S View," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 109-138, June.

    More about this item

    Keywords

    Subcontracting; Informal Wage; Poverty; Labour Productivity; R&D;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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