Using recent survey data on South Korean firms’ strategies for sourcing intermediate goods from abroad, we investigate whether there exists a productivity premium of offshoring by considering organizational forms (insourcing versus outsourcing) and the income level of offshored
countries (North versus South) altogether. Thus, we consider the following four offshoring types: outsourcing from South, insourcing from South, outsourcing from North and insourcing from North. Unlike previous studies, we give particular attention to the comparison between outsourcing from
North and insourcing from South and find that firms outsourcing from North are more productive than firms sourcing from their own affiliates in South. We offer three critical conditions to incorporate our empirical findings into the standard firm heterogeneity model: the fixed cost is higher
for insourcing than for outsourcing and is higher in North than in South, the headquarters receive a larger share of the final revenue through insourcing than through outsourcing, and sourcing from North guarantees better profitability (or a bigger share) in the market for the headquarters
than sourcing from South. Thus, this article contributes to the literature by identifying a new productivity order.
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Document Type: Research Article
Graduate School of Business, Inha University, Incheon, South Korea
Department of Economics, Korea University, Anam-dong, Seongbuk-gu, Seoul, 136-701, Republic of Korea
Department of Economics, University of Memphis, Memphis, USA
Publication date: 2014-05-24
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