What Determines In-house Service Activities within Manufacturing Firms: Firm-level Evidence from Korea

Abstract

This study empirically investigates the key determinants of in-house service activities within manufacturing firms based on an establishment-level panel dataset from 2006 to 2019. The extent of in-house service activities is measured as the proportion of workers performing knowledge-intensive core service functions, such as R&D, design, IT, administration, and management. After controlling for unobserved heterogeneity and simultaneity by adopting the system generalized method of moments, our regression results reveal that companies with higher export intensities, wider networks of overseas subsidiaries, or those located in metropolitan areas engage in more in-house service activities than their counterpart, and that no statistically significant link exists between external outsourcing and in-house service activities. Overall, our results suggest that export activities and overseas FDI networks are key determinants of the extent of in-house service provisions within Korean manufacturing firms.