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Outsourcing, Complementary Innovations and Growth

  • Alireza Naghavi

    ()

  • Gianmarco I.P. Ottaviano

    ()

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.

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File URL: http://www.recent.unimore.it/wp/RECent-wp19.pdf
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Paper provided by University of Modena and Reggio E., Dept. of Economics "Marco Biagi" in its series Center for Economic Research (RECent) with number 019.

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Length: pages 23
Date of creation: May 2008
Date of revision:
Handle: RePEc:mod:recent:019
Contact details of provider: Web page: http://www.recent.unimore.it/

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  1. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers 5589, C.E.P.R. Discussion Papers.
  2. Ottaviano, Gianmarco, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers.
  3. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium?," Harvard Institute of Economic Research Working Papers 1965, Harvard - Institute of Economic Research.
  4. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  5. Marin, Dalia & Verdier, Thierry, 2002. "Globalization and the 'New Enterprise'," Discussion Papers in Economics 11, University of Munich, Department of Economics.
  6. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 729-761.
  8. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  9. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  10. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  11. Naghavi, Alireza & Ottaviano, Gianmarco, 2006. "Outsourcing, Contracts and Innovation Networks," CEPR Discussion Papers 5681, C.E.P.R. Discussion Papers.
  12. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  13. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  14. Edwin Lai & Raymond Riezman & Ping Wang, 2009. "Outsourcing of innovation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 485-515, March.
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