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Subcontracting,R&D and labour productivity: a theoretical explanation

Maiti, Dibyendu S. and Marjit, Sugata (2011) Subcontracting,R&D and labour productivity: a theoretical explanation. Journal of Economic Development, 36 (3). pp. 1-24. ISSN 0254-8372

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While a large body of researches discusses the effects of international subcontracting on firm dynamics, the present work deals with the similar issues of a domestic firm who subcontracts to the informal sector in a typical developing world. Theoretically, we develop a model that if the formal sector wage is higher than that of informal sector, the choice of informal sector subcontracting and in-house R&D investment appears to be alternative options to the firm to bypass expensive labour in the formal sector. We argue that the R&D and labour productivity in formal sector are highly influenced by the informal wage but not the formal sector one. Since the subcontracting can raise both supply and demand for informal workers due to a rise of formal sector wage, the movement of informal sector wage is uncertain and thereby, the formal sector R&D and labour-productivity are also ambiguous. Thus, countries with a vast segment of lowly-paid informal workers exhibit lowly-productive formal workers.

Item Type: Journal Article
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Faculty of Business and Economics (FBE) > School of Economics
Depositing User: Unnamed user with email
Date Deposited: 08 Aug 2011 21:44
Last Modified: 05 May 2013 21:22

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