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Productivity, outsourcing and exit: the case of Australian manufacturing

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  • Sasan Bakhtiari

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Abstract

This paper uses a panel of small and medium manufacturing firms in Australia and studies the relationship between productivity and outsourcing accounting for the possibility of inefficient firms self-selecting into exit instead of outsourcing to domestic suppliers. Estimating a propensity model on an unbalanced panel of firms and correcting for the selection bias when firms opt for exit shows that the impact of productivity on the outsourcing decision could be much larger than estimated so far. The paper further explores the impact of outsourcing on a firm’s future performance and finds that the effect is non-uniform and productivity dependent, and outsourcing mostly brings improvements to firms that initially had low productivities. The most productive firms seem to outsource for other reasons such as focusing on innovation and exports with an eye on longer-term returns. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Sasan Bakhtiari, 2015. "Productivity, outsourcing and exit: the case of Australian manufacturing," Small Business Economics, Springer, vol. 44(2), pages 425-447, February.
  • Handle: RePEc:kap:sbusec:v:44:y:2015:i:2:p:425-447
    DOI: 10.1007/s11187-014-9604-2
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    References listed on IDEAS

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    Cited by:

    1. Höglund, Henrik & Sundvik, Dennis, 2016. "Financial reporting quality and outsourcing of accounting tasks: Evidence from small private firms," Advances in accounting, Elsevier, vol. 35(C), pages 125-134.
    2. Sasan Bakhtiari & Robert Breunig, 2017. "New Outsourcing, Demand Uncertainty and Labor Usage," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 69-90, February.

    More about this item

    Keywords

    Contracting out; Productivity; Exit selection; Small and medium businesses; Manufacturing; D24; L21; L24; L6;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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