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This paper studies the determinants of outsourcing intensity using firm-level panel data for Spanish manufacturing industries. Outsourcing refers to contract out the manufacturing of custom-made finished products or parts and components. Following the theoretical framework of Grossman and Helpman (2002), we take into account the presence of sunk entry costs as well as other firm, industry and market characteristics that influence the level of outsourcing.
Moreover, we consider firstly that the company decides to outsourcing or not, and once outsourcing has been the chosen option, the firm establishes the volume of production to be subcontracted. Although the problem of sample selection is typically ignored in panel data settings, we use the Heckman procedure to eliminate the effect of selection bias from the estimated results.
Our results show that some variables influencing the outsourcing intensity are different from those that affect decision of outsourcing.
