OFFSHORING OF INTERMEDIATE PRODUCTION AND FIRM-LEVEL INNOVATION: AN EMPIRICAL ANALYSIS

Abstract

Offshoring is a widespread practice nowadays and has been the subject of muchscientific research. The effect of offshoring on factors such as costs, productivity,employment or wages has been extensively analyzed. Despite its importance,however, empirical research on the impact of offshoring on firm-level innovation hasbeen scarce. Theoretical arguments predict contrasting effects. While some of thecharacteristics of the offshoring process may induce firm innovation, others mighthave deleterious consequences. Grounded on the resource-based view of the firm,and transaction cost theory we analyze the effect of the offshoring of intermediateproduction activities �either offshore outsourcing or captive offshoring� on firm-levelinnovation. Using data from 1,203 Spanish manufacturing firms from 2006 to 2009,we find a positive association between the offshoring of intermediate products andproduct innovation. Our results also show that the effect is positive for both captiveoffshoring and offshore outsourcing.