MAKE OR BUY DECISION AND TECHNOLOGY CHOICE

Author

Junaidah Hasan, Southern Illinois University CarbondaleFollow

Date of Award

12-1-2018

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Dai, Chifeng

Abstract

The make-or-buy decision is a strategic decision that has important implications for the overall firms' performance. This dissertation demonstrates that the strategic considerations can influence firm's sourcing decisions and the choice of supplier's production technology. In the first chapter, we demonstrate that a rival’s reliance on a supplier may prompt a firm to produce input internally rather than to outsource to the same supplier even when the internal production is more costly than outsourcing (to induce the supplier to choose a less advanced technology). The supplier's choice of less advanced technology provides the firm with more competitive advantage. With the less advanced technology, the higher marginal cost of production leads to the higher price of input to the rival. The production industry is inefficient because the least-cost producer of the inputs does not supply the critical inputs in equilibrium. In the second chapter, we introduce government policies to enhance the only efficient firm to produce and the only high technology is used in equilibrium. Two policies (tax and subsidy) are considered simultaneously to affect the choice of supplier's production technology and to maximize social welfare. We demonstrate that different strategic policies may exert different effects on the choice of technology and the correct government policy will induce the firm to switch regime and the monopoly supplier to switch technology. Industry production patterns are efficient because the least-cost producer of the input supplies the input in equilibrium and the economy enjoys the benefits of economies of scale. In the third chapter, we focus on the labor productivity growth - technology growth relationship for ASEAN countries using the bootstrap rolling window approach. The results show that there exists causality links between the series under consideration. The periods of causal links are associated with various significant economic changes. This result indicates that the results from bootstrap rolling tests are not statistical artefacts and correspond to real economic changes. While the positive relationships between labor productivity growth and technology growth were expected, this chapter explained the real economic changes behind the negative relationship between the series.