Productivity and offshoring innovative activities

Recent studies suggest that firms may gain from global sourcing of innovative activities. Yet, only a small number of firms offshore their R&D, design, and engineering tasks. To explain this selection pattern, this paper examines the heterogeneity in total factor productivity among a large group of European firms. The results suggest that those firms that offshore their innovative activities tend to be more productive than domestic firms, exporters, and other multinational corporations. This finding implies that firms with superior productivity are more likely to exploit the global task distribution in innovative activities, which may provide an explanation for why such low participation is observed in the data. This is a postprint of the published article.Ye