Why do some firms contract out production? Evidence from firm-level panel data

This article examines which factors determine outsourcing decision using firm level data. According to the theoretical and empirical literature, firm, industry and market characteristics influence the likelihood of contracting out. We try to identify which firm characteristics are prerequisites for becoming an outsourcer. Using a dynamic panel data probit model, our results show that firms with previous subcontracting experience, higher wages, frequent market changes, R&D activities, product differentiation, large size and exporter status are more likely to engage in outsourcing.