Outsourcing, Complementary Innovations and Growth

Alireza Naghavi and Gianmarco Ottaviano

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: This paper studies the parallel creation of complementary upstream and downstream innovations by independent labs to shed light on the impact of outsourcing on R&D when supply contracts are incomplete. In particular, we argue that outsourced upstream production contributes to the emergence of innovation networks by creating a demand for upstream R&D. We then analyze under which conditions this leads to faster innovation than in the case of vertically integrated production relying on integrated R&D. In the presence of incomplete supply contracts, the ex-post bargaining power of upstream and downstream parties feeds back to innovation. This determines whether outsourcing decisions leading to static gains from specialized production generate or not also dynamic gains in terms of faster innovation.

Keywords: outsourcing; complementary innovations; incomplete contracts; organization of firms (search for similar items in EconPapers)
JEL-codes: D91 L14 L23 O32 (search for similar items in EconPapers)
Pages: pages 23
Date: 2008-05
New Economics Papers: this item is included in nep-cse, nep-cta, nep-ino, nep-ipr, nep-pr~ and nep-mic
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Outsourcing, complementary innovations, and growth (2010)
Working Paper: Outsourcing, Complementary Innovations and Growth (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:019

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