Outsourcing Investigate

Outsourcing and Firm Productivity

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Executive Summary

I attempt to identify a causal link between the outsourcing of parts of the production process and firm productivity for a large panel of Irish manufacturing firms. Outsourcing is taken to mean the procurement of inputs from outside the boundaries of the firm, with international outsourcing being outsourcing from a foreign provider. Theory suggests that as firms outsource more 'non-core' activities to specialized providers, productivity will increase along two channels: in the short-run, the firm will benefit from cheaper or higher-quality inputs, while in the medium term the firm will be able to reallocate resources towards higher value-added activities.

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