GEP Research Paper 05/27
Outsourcing and R&D
Sugata Marjit and Arijit Mukherjee
Abstract
This paper considers the effect of outsourcing on R&D of the contracting firm. We show that outsourcing increases (decreases) R&D investment in a declining (booming) industry. If outsourcing reduces potential R&D investment, it may also make the consumers worse off. We show that outsourcing raises R&D effort in more competitive product markets. If outsourcing takes place in unskilled activities, it is likely to increase R&D if proportion of skilled employment is higher and skill wage is relatively high. If outsourcing positively affects the productivity of the skilled workers, it provides further disincentive for R&D.
Issued in September 2005.
This paper is available in PDF format .