Outsourcing and Firm Productivity in a Specific Local Production System: Evidence from Reggio Emilia (Italy)

ABSTRACT This paper investigates the impact of outsourcing on the labor productivity of firms in a specific local production system.A number of hypotheses about the location-specific effects of outsourcing are put forward and tested on a sample of firms in the province of Reggio Emilia (within the Emilia-Romagna region, in North-East Italy). The relationship between outsourcing and productivity turns out positive only if considering the externalization of high value-added activities. On the contrary, it is negative in the case of low value-added activities. This occurs to a greater extent for firms in mature industrial districts, whose socio-economic conditions however do not arrive to magnify the productivity premium of externalizing high value-added ones. The technological innovativeness of the firms instead helps with that, pointing to a developmental use of outsourcing in the area.