Outsourcing, complementary innovations, and growth

Alireza Naghavi and Gianmarco Ottaviano

Industrial and Corporate Change, 2010, vol. 19, issue 4, 1009-1035

Abstract: This article studies the parallel creation of complementary innovations serving the upstream and downstream stages of a production chain with the aim of shedding light on the impact of outsourcing on R&D when supply contracts are incomplete. We argue that outsourced upstream production contributes to the emergence of innovation networks by creating a demand for upstream R&D. The bargaining weight of the two parties determines whether outsourcing decisions that lead to static specialization gains also generate dynamic gains when compared with vertically integrated production that relies on integrated R&D. In particular, growth is maximized when the bargaining power is split in a way that search and hold-up frictions are minimized. Putting this result next to the decision of firms to outsource, we conclude that complementary innovations are more likely to foster growth in Schumpeterian Mark I sectors, while vertical integration does so in Schumpeterian Mark II sectors. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/10.1093/icc/dtp051 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Outsourcing, Complementary Innovations and Growth (2008)
Working Paper: Outsourcing, Complementary Innovations and Growth (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:indcch:v:19:y:2010:i:4:p:1009-1035

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Industrial and Corporate Change is currently edited by Josef Chytry

More articles in Industrial and Corporate Change from Oxford University Press and the Associazione ICC Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().