Outsourcing, Contracts, and Innovation Networks

Abstract

In this chapter, discusses the growth in outsourcing in industrial countries in order to boost efficiency and focus on specialization. The bulk of industries that search for offshore help with innovation lies mostly in the electronics sector, however the concept has spread to nearly every sector of the economy. This growth in outsourcing brings up the heated debate regarding the costs and benefits of industrial fragmentation. This chapter then investigates the dynamic effects of outsourcing and tries to derive what brought about this new approach to innovation based on global networks of partners. The chapter uses its own model to explain these trends, where the model supposes that R&D is always outsourced. The model used also takes after certain aspects of the static outsourcing model of Grossman and Helpman, and tries to improve on other areas of its framework.

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