Do specialists exit the firm outsourcing its R&D?

Do specialists exit the firm increasingly outsourcing its research and development (R&D) work? Although this question is critical in understanding how R&D outsourcing links to innovation performance, the answer is not yet clear. This paper proposes that the optimal level of firm’s internal employment of R&D specialists decreases with the deepening of R&D outsourcing but increases with the broadening of R&D outsourcing. These relations can be inferred from previous empirical studies as well as our theoretical analysis, and are supported by the empirical evidence from estimations of correlated random effects (CRE) Tobit, CRE selection and CRE fractional response models on a panel dataset of Danish firms.