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Discussion Paper Details

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Title: Services outsourcing and innovation: An empirical investigation

Author(s): Holger Görg and Aoife Hanley

Publication Date: August 2009

Keyword(s): innovation, offshoring, R&D and services outsourcing

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Görg, H and Hanley, A. 2009. 'Services outsourcing and innovation: An empirical investigation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7390