Outsourcing and Productivity During Economic Crisis: Evidence from Indian Manufacturing Firms

Abstract

Outsourcing as a form of production reorganisation has important implications for factor productivity. Empirical verification of this relationship for India, however, is unavailable in the recent times. To fill this gap, we measure the relationship between outsourcing and multifactor productivity for Indian firms between 2010 and 2014. We use fixed-effect panel data regression and GMM estimates to establish that outsourcing raises productivity significantly at the source. The outsourcing–productivity link has important policy implications for developing countries, such as India. Relative inflexibility of labour market institutions and slow-moving legal procedures may otherwise restrict the restructuring of firms under duress. Outsourcing-related productivity improvements might have helped to overcome such disadvantages even during the global crisis of 2008–2009. JEL: D24, L6