Productivity effects of IT-outsourcing: Semiparametric evidence for German companies

This paper analyzes the relationship between IT-outsourcing and labor productivity of 1142 firms from German manufacturing and service industries surveyed in 2000. An endogenous switching regression model takes into account that firms might follow different productivity regimes depending on whether or not they source out IT-tasks. Two semiparametric approaches are presented and applied to the data. They allow the outsourcing decision to nonlinearly depend on firm size. The empirical results show that firms with IT-outsourcing do not differ significantly from non-outsourcing firms with respect to the partial production elasticities of the input factors labor, IT-investment and non-IT-investment. However, firms without IT-outsourcing turn out to produce more than those sourcing out.