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Efficiency and Outsourcing: Evidence from Australian Manufacturing

  • Sasan Bakhtiari


    (School of Economics, The University of New South Wales)

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    This paper studies the role of efficiency in a firm’s decision to contract out. Emphasis is on the heterogeneous nature of firms and when firms are only considering outsourcing to domestic suppliers. Firm-level data on Australian manufacturing reveal an ordering of efficiency between firms that contract out and those that do not, in which contracting-out firms are on aggregate less efficient. The analysis further shows that firms experience improvement in their efficiency soon after contracting out, but only if their performance has been below average prior to contracting out. The results show robustness to the choice of efficiency measure, where efficiency is expressed in both productivity and cost advantage.

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    Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-07.

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    Length: 18 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:swe:wpaper:2012-07
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    1. Arindrajit Dube & Ethan Kaplan, 2010. "Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards," ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
    2. Wilhelm Kohler & Marcel Smolka, 2009. "Global Sourcing Decisions and Firm Productivity: Evidence from Spain," CESifo Working Paper Series 2903, CESifo Group Munich.
    3. José C. Fariñas & Ana Martín-Marcos, 2010. "Foreign Sourcing and Productivity: Evidence at the Firm Level," The World Economy, Wiley Blackwell, vol. 33(3), pages 482-506, 03.
    4. Robert Breunig & Marn-Heong Wong, 2007. "A Richer Understanding of Australia’s Productivity Performance in the 1990s: Improved estimates based upon firm-level panel data," CEPR Discussion Papers 545, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    5. 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.
    6. 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.
    7. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer, vol. 37(1), pages 47-63, February.
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