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Does Outsourcing Increase Profitability?

  • Görg, Holger

    ()

    (Kiel Institute for the World Economy)

  • Hanley, Aoife

    ()

    (Kiel Institute for the World Economy)

We investigate the relationship between outsourcing and profitability paying particular attention to the endogeneity of outsourcing. The empirical analysis uses unique plant level data for the electronics sector in Ireland. A particular feature of the data is that it records detailed information for 12 electronics sub-sectors covering both manufacturing and services activities. We distinguish outsourcing of materials from outsourcing of services inputs. We find that plants that are substantially larger than the mean employment size benefit from outsourcing materials and services inputs, while this does not appear to be the case for small plants. Results for outsourcing of services are not as clear-cut, however.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1372.

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Length: 29 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published in: Economic and Social Review, 2004, 35(3), 267-288
Handle: RePEc:iza:izadps:dp1372
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  1. 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.
  2. Gorzig, Bernd & Andreas Stephan, 2003. "Outsourcing and Firm-level Performance," Royal Economic Society Annual Conference 2003 90, Royal Economic Society.
  3. 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.
  4. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  6. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  8. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
  9. Almas Heshmati, 2003. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 79-112, February.
  10. Barry, F & Bradley, J, 1997. ""FDI and Trade : The Irish Host-Country Experience"," Papers 97/13, College Dublin, Department of Political Economy-.
  11. Kumar, Nagesh, 1990. "Mobility Barriers and Profitability of Multinational and Local Enterprises in Indian Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 449-63, June.
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  13. Görg, H & Ruane, F, 1999. "Globalisation and Fragmentation: Evidence from the Electronics Industry in Ireland," Trinity Economics Papers 9911, Trinity College Dublin, Department of Economics.
  14. Frode Steen, 2002. "Vertical Industry Linkages: Sources of Productivity Gains and Cumulative Causation?," Review of Industrial Organization, Springer, vol. 21(1), pages 3-20, August.
  15. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 379-98, June.
  16. Sanjib Bhuyan, 2002. "Impact of Vertical Mergers on Industry Profitability: An Empirical Evaluation," Review of Industrial Organization, Springer, vol. 20(1), pages 61-79, February.
  17. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 907-940, August.
  18. 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.
  19. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February.
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