4 The Impact of Outsourcing on Total Factor Productivity-Evidence from Matched Firm Level Data

The aim of this paper is to assess the influence of firms service outsourcing decisions on their performance. I evaluate whether those firms experience significant productivity gains that decide to rearrange their production process by subcontracting in-house activities to outside suppliers. The analysis is based on a representative panel dataset of German manufacturing firms. I estimate separate production functions for firms that outsource parts of their services and those who do not with the help of a matched sample while taking care of endogeneity problems using an estimation approach suggested by Levinsohn and Petrin (2003)