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Outsourcing, Complementary Innovations and Growth

Author

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  • Alireza Naghavi

    ()

  • Gianmarco I.P. Ottaviano

    ()

Abstract

This paper studies the parallel creation of complementary upstream and downstream innovations by independent labs to shed light on the impact of outsourcing on R&D when supply contracts are incomplete. In particular, we argue that outsourced upstream production contributes to the emergence of innovation networks by creating a demand for upstream R&D. We then analyze under which conditions this leads to faster innovation than in the case of vertically integrated production relying on integrated R&D. In the presence of incomplete supply contracts, the ex-post bargaining power of upstream and downstream parties feeds back to innovation. This determines whether outsourcing decisions leading to static gains from specialized production generate or not also dynamic gains in terms of faster innovation.

Suggested Citation

  • Alireza Naghavi & Gianmarco I.P. Ottaviano, 2008. "Outsourcing, Complementary Innovations and Growth," Center for Economic Research (RECent) 019, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  • Handle: RePEc:mod:recent:019
    as

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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Carlo Altomonte & Tommaso Aquilante & Gábor Békés & Gianmarco I.P. Ottaviano, 2013. "Internationalization and innovation of firms: evidence and policy," Economic Policy, CEPR;CES;MSH, vol. 28(76), pages 663-700, October.
    2. repec:spr:elcore:v:17:y:2017:i:3:d:10.1007_s10660-016-9239-2 is not listed on IDEAS
    3. repec:spr:manint:v:51:y:2011:i:2:d:10.1007_s11575-011-0074-3 is not listed on IDEAS
    4. E. Loukis & N. Kyriakou & K. Pazalos & S. Popa, 0. "Inter-organizational innovation and cloud computing," Electronic Commerce Research, Springer, vol. 0, pages 1-23.
    5. Ottaviano, Gianmarco, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers.
    6. Fabrice Defever, "undated". "Incomplete Contracts and the Impact of Globalization on Consumer Welfare," Discussion Papers 11/08, University of Nottingham, GEP.
    7. Cassey Lee & Dionisius Narjoko, 2015. "Escaping the Middle-Income Trap in Southeast Asia: Micro Evidence on Innovation, Productivity, and Globalization," Asian Economic Policy Review, Japan Center for Economic Research, vol. 10(1), pages 124-147, January.
    8. Alireza Naghavi & Gianmarco Ottaviano, 2009. "Offshoring and product innovation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 517-532, March.
    9. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR;CES;MSH, vol. 23, pages 51-91, January.
    10. Cassey LEE, 2012. "Knowledge Flows, Organization and Innovation: Firm-Level Evidence from Malaysia," Working Papers DP-2012-11, Economic Research Institute for ASEAN and East Asia (ERIA).

    More about this item

    Keywords

    outsourcing; complementary innovations; incomplete contracts; organization of firms;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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