The effects of outsourcing on firm productivity: Evidence from microdata in the Netherlands

International outsourcing is an important aspect of economic globalization. Since outsourcing leads to more specialization, it is expected to reduce production costs and to increase productivity. This study uses microdata on Dutch firms to investigate the effects of international and domestic outsourcing on firm productivity at the firm level. It is based on a unique survey on outsourcing covering the period 2001–2006. The survey allows us to distinguish between domestic and international outsourcing and between outsourcing of core and support activities. We study the effects of these different types of outsourcing on labour productivity and total factor productivity (TFP). The results show that, without adjusting for firm size, more productive firms are more likely to outsource. When we adjust for firm fixed effects, the results suggest that international outsourcing of core functions decreased TFP and domestic outsourcing of support functions increased TFP.