Do firms sourcing out IT services redirect their resources to innovation activity?
We attempt to answer this question by analysing a firm-level data set
comprising 1453 firms from the German manufacturing and services sectors.
Using different measures of IT outsourcing (ITO), the econometric estimations
reveal a signifcant and U-shaped relationship between ITO and product innovation
activity of manufacturing firms, and a signifcant and hump-shaped
relationship between ITO and process innovation activity of services firms.
A propensity score matching analysis takes account of reverse causality; the
results underpin the relevance of ITO for services firms' realisation of process
innovation
