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Outsourcing and Technological Innovations: A Firm-Level Analysis

Author

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  • Bartel, Ann P.

    (Columbia University)

  • Lach, Saul

    (Hebrew University, Jerusalem)

  • Sicherman, Nachum

    (Columbia University)

Abstract

This paper presents a dynamic model that analyzes how firms’ expectations with regards to technological change influence the demand for outsourcing. We show that outsourcing becomes more beneficial to the firm when technology is changing rapidly. As the pace of innovations in production technology increases, the firm has less time to amortize the sunk costs associated with purchasing the new technologies. This makes producing in-house with the latest technologies relatively more expensive than outsourcing. The model therefore provides an explanation for the recent increases in outsourcing that have taken place in an environment of increased expectations for technological change. We test the predictions of the model using a panel dataset on Spanish firms for the period 1990 through 2002. The empirical results support the main prediction of the model, namely, that all other things equal, the demand for outsourcing increases with the probability of technological change.

Suggested Citation

  • Bartel, Ann P. & Lach, Saul & Sicherman, Nachum, 2008. "Outsourcing and Technological Innovations: A Firm-Level Analysis," IZA Discussion Papers 3334, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3334
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    Cited by:

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    2. Dharma Kwon, H. & Lippman, Steven A. & Tang, Christopher S., 2011. "Sourcing decisions of project tasks with exponential completion times: Impact on operating profits," International Journal of Production Economics, Elsevier, vol. 134(1), pages 138-150, November.
    3. Hanen Sdiri & Mohamed Ayadi, 2016. "Innovation and service outsourcing: an empirical analysis based on data from Tunisian firms," Journal of Innovation and Entrepreneurship, Springer, vol. 5(1), pages 1-13, December.
    4. Sdiri, Hanen & Ayadi, Mohamed, 2012. "Innovation et externalisation des services: une analyse empirique sur données d'entreprises tunisiennes [Innovation and outsourcing of services: a firm-level analysis]," MPRA Paper 39359, University Library of Munich, Germany.
    5. Laura Abramovsky & Rachel Griffith, 2009. "ICT, corporate restructuring and productivity," IFS Working Papers W09/10, Institute for Fiscal Studies.

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    Keywords

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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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