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Market Thickness, Sunk Entry Costs, Firm Heterogeneity and the Outsourcing Decision: Empirical Evidence of Manufacturing Firms in France

  • Liza Jabbour

In this paper I investigate, empirically, the outsourcing strategy by firms in French manufacturing industries. I particularly focus on the effect of the market thickness and of firm heterogeneity on the outsourcing strategy. For this purpose, I estimate a dynamic probit model where I link the decision to outsource to previous outsourcing behaviour. I am able to estimate the sunk entry costs incurred by the firms when adopting an outsourcing strategy. The results show that outsourcing is a persistent strategy adopted by more productive firms and larger ones. They also show that market thickness reduces search costs and enhances the establishment of outsourcing relationships.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2008/08-20.pdf
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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/20.

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Handle: RePEc:not:notgep:08/20
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  1. Liza Jabbour, . "“Slicing the Value Chain” Internationally: Empirical Evidence on the Offshoring Strategy by French Firms," Discussion Papers 08/02, University of Nottingham, GEP.
  2. repec:hrv:faseco:4784029 is not listed on IDEAS
  3. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  4. Görg, Holger & Hanley, Aoife & Strobl, Eric, 2007. "Productivity Effects of International Outsourcing: Evidence from Plant Level Data," CEPR Discussion Papers 6361, C.E.P.R. Discussion Papers.
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  6. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  7. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
  8. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  9. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  10. Angela Triguero, & Carmen Díaz Mora, . "Why do some firms contract out production?," Studies on the Spanish Economy 232, FEDEA.
  11. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  13. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
  14. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  15. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  16. Mark B. Stewart, 2007. "The interrelated dynamics of unemployment and low-wage employment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 511-531.
  17. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
  18. Holl, Adelheid, 2008. "Production subcontracting and location," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 299-309, May.
  19. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  20. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  21. Swenson, Deborah L., 2004. "Entry costs and outsourcing decisions: evidence from the U.S. overseas assembly provision," The North American Journal of Economics and Finance, Elsevier, vol. 15(3), pages 267-286, December.
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