Does IT Outsourcing Increase Firm Success? An Empirical Assessment Using Firm-Level Data

56 Pages Posted: 17 Jan 2008 Last revised: 1 Sep 2014

See all articles by Jörg Ohnemus

Jörg Ohnemus

Centre for European Economic Research (ZEW)

Date Written: 2007

Abstract

Using German firm-level data, an endogenous switching regression model within a production function framework is estimated in order to explore differences in labor productivity between IT outsourcing and non-IT outsourcing firms. This approach takes possible complementarities between IT outsourcing and production input factors into account and further allows IT outsourcing to affect any factor of the production function. Estimation results show that IT outsourcing firms produce more efficiently than non-IT outsourcing firms. Furthermore, they have a significantly larger output elasticity with respect to computer workers. Therefore computer workers and IT outsourcing can be interpreted as complementary factors positively affecting firms' labor productivity. An additional analysis indicates that IT outsourcing, in the medium-term, has a positive effect on firms' employment growth rate.

Keywords: IT Outsourcing, Productivity, Endogenous Switching Regression, Employment Growth

JEL Classification: C21, D24, J21, J24

Suggested Citation

Ohnemus, Jörg, Does IT Outsourcing Increase Firm Success? An Empirical Assessment Using Firm-Level Data (2007). ZEW - Centre for European Economic Research Discussion Paper No. 07-087, Available at SSRN: https://ssrn.com/abstract=1084809 or http://dx.doi.org/10.2139/ssrn.1084809

Jörg Ohnemus (Contact Author)

Centre for European Economic Research (ZEW) ( email )

D-68034 Mannheim
Germany

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