Working Paper: NBER ID: w11158
Authors: Ann Bartel; Saul Lach; Nachum Sicherman
Abstract: In this paper we argue that an important source of the recent increase in outsourcing is the computer and information technology revolution, characterized by increased rates of technological change. Our model shows that an increase in the pace of technological change increases outsourcing because it allows firms to use services based on leading edge technologies without incurring the sunk costs of adopting these new technologies. In addition, firms using more IT-intensive technologies face lower outsourcing costs of IT-based services generating a positive correlation between the IT level of the user and its outsourcing share of IT-based services. This implication is verified in the data.
Keywords: Outsourcing; Technological Change; Information Technology
JEL Codes: M55; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased technological change (O33) | Increased outsourcing (L24) |
| Increased technological change (O33) | Lower adjustment costs (D23) |
| Lower adjustment costs (D23) | Increased outsourcing (L24) |
| IT intensity of firms (L20) | Lower outsourcing costs (L24) |
| IT intensity of firms (L20) | Increased outsourcing (L24) |
| Level of technology in service production (O14) | Increased outsourcing (L24) |