Outsourcing of services is one of the most important phenomena that are reshaping firms’ boundaries in the last decades. This article assesses the reasons leading manufacturing firms to contract out some service activities instead of providing them internally. The theoretical framework, inspired in transaction cost economics, emphasizes the effects that firm heterogeneity and service-specific decisions have on the decision to outsource. Our empirical analysis, using Spanish firm data, suggests the relevance of nonlineal effects related to firm size, wage differentials and location, among other factors, with clear differences among groups of services.
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