FIW, a collaboration of WIFO (www.wifo.ac.at), wiiw (www.wiiw.ac.at) and WSR (www.wsr.ac.at).

The causality from outsourcing, defined as the procurement of inputs from outside the boundaries of the firm, to productivity is tested for a large panel of Irish manufacturing firms. Theory suggests that as firms outsource more ‘non-core’ activities to specialized providers, productivity due to the firm benefiting from cheaper or higher-quality inputs and from reallocation of resources towards higher value-added activities. The international outsourcing case adds another dimension in the form of input variety, quality and technological embeddedness. I test the above hypothesis using a “System GMM ” estimator to control for endogeneity in the panel and allow for a lagged dependent variable to be a regressor. International outsourcing is found to lead to productivity gains, but upon closer inspection it seems that firms ’ international orientation and type of industry both matter