Trade in intermediate inputs now accounts for as much as two-thirds of international trade. Firms must decide which segments of their production processes to own and which to outsource. Using global plant-level data, this column empirically examines firms’ organisational choices along value chains. Decisions to integrate or outsource upstream and downstream functions are found to depend on demand elasticity relative to the substitutability of inputs. These results provide strong evidence that integration decisions are driven by contractual frictions.
Laura Alfaro, Pol Antràs, Davin Chor, Paola Conconi, 14 November 2015
Christopher Stanton, Catherine Thomas, 03 November 2015
Outsourcing labour tasks to lower wage countries has been made much easier by the emergence of global online labour markets. This column argues that there are significant frictions in these markets, making it difficult for workers to get their first job and establish a reputation. However, new types of organisations have emerged that allow the sharing of reputations among groups of high-quality workers. These organisations seem to rely on offline social ties between workers to help reduce information-related trade barriers.
Wilhelm Kohler, Marcel Smolka, 20 February 2015
The share of international trade within firm boundaries varies greatly across countries.
This column presents new evidence on how the productivity of a firm affects the choice between vertical integration and outsourcing, as well as between foreign and domestic sourcing. The productivity effects found in Spanish firm-level data suggest that contractual imperfections distort the sourcing of inputs in the global economy, and that firm boundaries emerge in response to mitigate this distortion.
Giuseppe Berlingieri, 25 September 2014
Advanced nations are shedding manufacturing jobs and gaining service jobs – a trend that has been in place for decades. Some of the shift, however, is a reclassification effect. Corporate outsourcing of tasks like marketing means workers doing the same task as before now show up as working for a firm in the service sector. Using US data from the past 60 years, this column shows that the evolution of the input-output structure – which is mostly due to professional and business services outsourcing – accounts for 36% of the increase in services and 25% of the fall in manufacturing.
Maria Bas, Vanessa Strauss-Kahn, 14 July 2014
The rise of trade in intermediate inputs is well documented, but its role in shaping domestic economies is not yet completely understood. This column presents evidence from French firms on the effects of importing intermediate inputs. Firms importing more varieties of intermediate inputs increased their productivity and exported more varieties. Foreign inputs from the most advanced economies have the strongest effect on firm productivity, but imported inputs from all countries help raise the number of export varieties.
Ursula Fritsch, Holger Görg, 23 September 2013
Outsourcing is a controversial practice. This column looks at its effects on firm-level innovation in emerging markets. The authors find robust evidence that outsourcing is positively related to various innovation measures. However, outsourcing only leads to increased R&D spending in countries where intellectual-property rights are well-protected.
Rachel Griffith, Helen Miller, Laura Abramovsky, 15 March 2012
Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.
Xiaole Wu, Fuqiang Zhang, 05 November 2011
As the global economic downturn grinds on, more companies are acknowledging that labour costs aren’t always the most important factor when deciding where to build their next factory. This column argues that, in times of recession, some companies find that bringing their business home can give them a competitive edge.
László Halpern, 01 July 2011
László Halpern of the Institute of Economics of the Hungarian Academy of Sciences talks to Viv Davies about a forthcoming report on the impact of the crisis on European business. The report finds considerable heterogeneity across countries and firms - for example, exporters contracted more than non-exporters, while importers suffered less of a decline - and highlights the policy trade-off between the benefits of export-oriented strategies versus outsourcing. The interview was recorded in Nottingham on 7 June 2011. [Also read the transcript.]
Gianmarco Ottaviano, 27 August 2010
Gianmarco Ottaviano of Bocconi University talks to Viv Davies about 'The Global Operations of European Firms', a report that analyses data on 15,000 firms in seven countries to show that firm size, productivity, skill intensity and the ability to innovate are associated with better export performance, foreign direct investment and outsourcing. He argues that firms can improve their competitiveness within the European single market, but competing effectively in the future will require more than just exporting to neighbouring EU countries. The interview was recorded in Rome on 19 June 2010.
Emmanuelle Auriol, Pierre Picard, 24 November 2009
Many rich countries have chosen to outsource public services. This column discusses the costs and benefits of such outsourcing policies and identifies when they improve welfare.
Holger Görg, Aoife Hanley, 07 September 2009
This column examines the impact of offshore outsourcing on firms’ profits and innovation. Using data on 2,000 Irish firms, it shows that the purchase of foreign inputs raises both profits and innovation. Offshore outsourcing seems to improve competitiveness and bode well for an economy’s long-term economic health.
Farid Toubal, Fabrice Defever, 26 July 2008
Outsourcing has been much discussed in terms of its impacts on employment and growth. But how, why, and where do firms outsource parts of their production? This column presents empirical evidence that tests theoretical models of global sourcing