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Outsourcing, Foreign Ownership and Productivity: Evidence from UK Establishment Level Data

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Listed author(s):
  • Sourafel Girma
  • Holger Görg

Abstract

This paper presents an empirical analysis of "outsourcing" using establishment level data for UK manufacturing industries. We analyse an establishment's decision to outsource and the subsequent effects of outsourcing on the establishment's productivity. We compare outsourcing in domestic with foreign-owned establishments. Our empirical results suggest that high wages are positively related to outsourcing, suggesting that the cost saving motive is important. We also find that foreign-owned firms have higher levels of outsourcing than domestic establishments. In the productivity analysis we find that an establishment's outsourcing intensity is positively related to its labour productivity and total factor productivity growth and that this effect is more pronounced for foreign establishments.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.40686.de/dp361.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 361.

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Length: 25 p.
Date of creation: 2003
Handle: RePEc:diw:diwwpp:dp361
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Keywords: outsourcing; foreign direct investment; productivity;

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Find related papers by JEL classification:
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
  • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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  1. Holger Görg & Aoife Hanley, 2004. "Does Outsourcing Increase Profitability?," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 267-288.
  2. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
  3. Holger Görg, 2000. "Fragmentation and trade: US inward processing trade in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 403-422, 09.
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  6. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 121-137, July.
  7. Gene M. Grossman & Elhanan Helpman, 2005. "Outsourcing in a Global Economy," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 135-159.
  8. Fixler, Dennis J. & Siegel, Donald, 1999. "Outsourcing and productivity growth in services," Structural Change and Economic Dynamics, Elsevier, vol. 10(2), pages 177-194, June.
  9. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters,in: Geography and Ownership as Bases for Economic Accounting, pages 235-258 National Bureau of Economic Research, Inc.
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  13. Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2003. "International Fragmentation and Relative Wages in the UK," IZA Discussion Papers 717, Institute for the Study of Labor (IZA).
  14. Greenhalgh, C. & Gregory, M. & Ray, A., 1989. "The Changing Structure Of U.K. Production, Trade And Employment: An Analysis Using Input Output Tables 1974-84," Economics Series Working Papers 9970, University of Oxford, Department of Economics.
  15. Rachel Griffith & Helen Simpson, 2004. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 147-180 National Bureau of Economic Research, Inc.
  16. Baltagi, Badi H. & Griffin, James M., 1997. "Pooled estimators vs. their heterogeneous counterparts in the context of dynamic demand for gasoline," Journal of Econometrics, Elsevier, vol. 77(2), pages 303-327, April.
  17. Thomas J. Holmes, 1999. "Localization Of Industry And Vertical Disintegration," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 314-325, May.
  18. Bernd Görzig & Andreas Stephan, 2002. "Outsourcing and Firm-level Performance," Discussion Papers of DIW Berlin 309, DIW Berlin, German Institute for Economic Research.
  19. Arndt, Sven W. & Kierzkowski, Henryk (ed.), 2001. "Fragmentation: New Production Patterns in the World Economy," OUP Catalogue, Oxford University Press, number 9780199243310.
  20. Lyons, Bruce R., 1995. "Specific investment, economies of scale, and the make-or-buy decision: A test of transaction cost theory," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 431-443, May.
  21. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  22. Hartmut Egger & Peter Egger, 2006. "International Outsourcing and the Productivity of Low-Skilled Labor in the EU," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 98-108, January.
  23. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
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