Working Paper: CEPR ID: DP9603
Authors: Ursula Fritsch; Holger Grg
Abstract: It is striking that by far the lion's share of empirical studies on the impact of outsourcing on firms considers industrialized countries. However, outsourcing by firms from emerging economies is far from negligible and growing. This paper investigates the link between outsourcing and innovation empirically using firm-level data for over 20 emerging market economies. We find robust evidence that outsourcing is associated with a greater probability to spend on research and development and to introduce new products and upgrade existing products. The effect of offshoring on R&D spending is significantly higher than the effect of domestic outsourcing. However, only domestic outsourcing increases the probability to introduce new products. We also show that the results crucially depend on the level of protection of intellectual property in the economy. Firms increase their own R&D effort in the wake of outsourcing only if they operate in an environment that intensively protects intellectual property.
Keywords: emerging economies; innovation; offshoring; outsourcing
JEL Codes: F14; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Outsourcing (L24) | probability of firms spending on research and development (R&D) (O32) |
| Offshoring (F23) | probability of firms spending on research and development (R&D) (O32) |
| Domestic outsourcing (L24) | probability of introducing new products (L15) |
| Offshoring (F23) | probability of introducing new products (L15) |
| Outsourcing + strong IP protection (L24) | increase in R&D efforts (O39) |