The Role of Information Technology Outsourcing on Output, Productivity and Technical Efficiency: Evidence from Indian Firms

Abstract

Existing econometric studies find that both information technology (IT) and outsourcing of goods and services production increase firms’ productivity. Until now, though, there has been no similar evaluation of IT outsourcing. This paper fills that gap using purchasing firms in India as a case study. It finds output elasticity for Software and IT Services (SWIS) outsourcing which implies bigger returns than those available from either general outsourcing or non-outsourced IT. There is also clear evidence that purchasing outsourced SWIS moves firms closer to parity with the most technically efficient firms. The paper concludes that outsourcing is a superior option for firms that wish to invest into IT and that in India it should be encouraged by policy.