Outsourcing, Importing and Innovation: Evidence from Firm-Level Data for Emerging Economies

This paper investigates two sourcing strategies of firms, outsourcing and importing, and links these to innovation activities. We investigate this empirically using firm-level data for 28 emerging market economies. We find robust evidence that outsourcing increases the likelihood to spend on R&D and via this channel raises innovation output, whereas importing increases innovation output, but not R&D. The results hold when implementing an instrumental variables approach. We also find that results crucially depend on the institutional environment in the economy, e.g., property rights and intellectual property rights protection. Our results suggest that better institutions magnify the gains from importing, but not from outsourcing. EU-countries also reap additional positive innovation effects from importing compared to non-EU countries.

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