Outsourcing and Technological Change

43 Pages Posted: 11 Jan 2010

See all articles by Ann P. Bartel

Ann P. Bartel

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Saul Lach

Hebrew University of Jerusalem - Department of Economics; CEPR

Nachum Sicherman

Columbia University; IZA Institute of Labor Economics

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Abstract

We present a dynamic model where the probability of outsourcing production is increasing in the firmメs expectation of technological change. As the pace of innovations in production technologies increases, the less time the firm has to amortize the sunk costs associated with purchasing and adopting new technologies to produce in-house. Therefore, purchasing from market suppliers, who can afford to use the latest technology, becomes relatively cheaper. The predictions of the model are tested using a panel dataset on Spanish firms for the time period 1990 through 2002. In order to address potential endogeneity problems, we use an exogenous proxy for technological change, namely the number of patents granted by the U.S. patent office classified by technological class. We map the technological classes to the Spanish industrial sectors in which the patents are used and provide causal evidence of the impact of expected technological change on the likelihood and extent of production outsourcing. No prior study has been able to provide such causal evidence. Our results are robust to the inclusion of detailed characteristics of the firms as well as firm fixed effects.

Keywords: outsourcing, technological change

JEL Classification: J21, L23, L24, O33

Suggested Citation

Bartel, Ann P. and Lach, Saul and Sicherman, Nachum, Outsourcing and Technological Change. IZA Discussion Paper No. 4678. Available at SSRN: https://ssrn.com/abstract=1533971

Ann P. Bartel (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Saul Lach

Hebrew University of Jerusalem - Department of Economics ( email )

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Israel
+972 2 588 3253 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: http://economics.huji.ac.il/facultye/saul/saul.html

CEPR

London
United Kingdom

Nachum Sicherman

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4464 (Phone)
212-316-9355 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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