Outsourcing Foreign Services and the Internet: Evidence from Firm Level Data

We analyse the link between internet use and foreign sourcing of services and materials inputs. In our empirical analysis using firm level data for Ireland we find, among firms that a priori all purchase inputs abroad, that those who commenced outsourcing from suppliers over the internet ("Adopters") experience significantly higher growth rates of services offshoring. This result shows in a variety of econometric methods (OLS, Propensity Scoring (Kernel, Nearest Neighbour and Caliper Matching)). Adopting the internet for outsourcing induced an increase in the share of foreign services by 3.2-4.0 per cent.