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Services Outsourcing and Innovation: An Empirical Investigation

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Listed author(s):
  • Görg, Holger

    ()

    (Kiel Institute for the World Economy)

  • Hanley, Aoife

    ()

    (Kiel Institute for the World Economy)

Abstract

We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing of services, but the magnitude is smaller. This makes intuitive sense, as international outsourcing allows more scope for exploiting international factor price differentials, therefore giving the establishment higher profits and more scope to restructure production activities towards innovation. We also find that international services outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4404.

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Length: 30 pages
Date of creation: Sep 2009
Publication status: published in: Economic Inquiry, 2011, 49(2), 321-333
Handle: RePEc:iza:izadps:dp4404
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Keywords: offshoring; services outsourcing; innovation; R&D;

Other versions of this item:

Find related papers by JEL classification:
  • F19 - International Economics - - Trade - - - Other
  • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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  1. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February.
  2. Dermot Leahy, & Catia Montagna, "undated". "‘Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Discussion Papers 07/05, University of Nottingham, GEP.
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  11. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
  12. repec:hrv:faseco:4784029 is not listed on IDEAS
  13. Hans-Werner Sinn, 2006. "The Pathological Export Boom and the Bazaar Effect: How to Solve the German Puzzle," The World Economy, Wiley Blackwell, vol. 29(9), pages 1157-1175, 09.
  14. Kohn, Meir & Scott, John T, 1982. "Scale Economies in Research and Development: The Schumpeterian Hypothesis," Journal of Industrial Economics, Wiley Blackwell, vol. 30(3), pages 239-249, March.
  15. Mark Cassidy & Holger Görg & Eric Strobl, 2005. "Knowledge Accumulation, And Productivity: Evidence From Plant-Level Data For Ireland," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(3), pages 344-358, 07.
  16. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
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  19. Sugata Marjit & Arijit Mukherjee, 2008. "Profit reducing international outsourcing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(1), pages 21-35.
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