International fragmentation of production and firm productivity [Elektronski vir] : evidence from Slovenian manufacturing firms
Burger, Anže, 1979-
An increasing number of firms outsource peripheral functions in order to stay focused on their core capabilities. This paper contributes to a limited body of empirical research on the relationship ...between intermediate inputs offshoring and firm productivity. I use a unique firm-level panel data set of Slovenian manufacturing firms operating in the period 1994-2005 with a detailed accounting information, foreign trade data, and innovation activity. Using propensity score matching techniques to analyze whether firms that start importing intermediate inputs become more productive, I find that new importers become more productive once they start sourcing their inputs abroad. The productivity gap between importers and their domestically-oriented counterparts increases further over time. In addition, I find support for focus effect hypothesis, according to which firms can increase focus on their core competencies and hence improve their productivity by delegating some of the input production to external contractors/subsidiaries. The results suggest a causal relationship from international sourcing of inputs to increased product and process innovation.
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