Efficiency and productivity comparisons between outsourcers and non-outsourcers: Evidence from a metafrontier production function with endogenous switching

This paper aims to compare productivity and technical efficiency (TE) between outsourcers and non-outsourcers with an empirical methodology that accounts for both heterogeneous production technologies and non-random sample separation. Using plant-level data on six two-digit manufacturing industries in Taiwan over the period 2002-2005, the endogenous switching regression and the stochastic metafrontier methodology enable us to generate TE scores that are comparable across production units that operate under different technologies without the standard assumption in the literature that the outsourcing status is out of the control of the plant and that outsourcers and non-outsourcers use the same technology. We find that outsourcers are, on average, more technically efficient and technologically advanced than non-outsourcers. Productivity differences account for the lion's share of the outsourcer-non-outsourcer output gap.