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Outsourcing and R&D
Sugata Marjit
Centre for Studies in Social Sciences, Calcutta
Arijit Mukherjee
University of Nottingham - School of Economics
December 2005
University of Nottingham GEP Working Paper No. 2005/27
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.
Keywords: R&D, Skilled and unskilled labors
JEL Classifications: F12, L14, L22, D23
Outsourcing and R&D.pdf
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