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Services Outsourcing and Innovation: An Empirical Investigation

Author

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  • 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.

Suggested Citation

  • Görg, Holger & Hanley, Aoife, 2009. "Services Outsourcing and Innovation: An Empirical Investigation," IZA Discussion Papers 4404, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp4404
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    More about this item

    Keywords

    offshoring; services outsourcing; innovation; R&D;

    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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