Proximity and Software Programming: IT Outsourcing and the Local Market

We examine the question of which services are tradable within a concrete setting: the outsourcing of IT services across a broad cross-section of establishments in the US. We analyze outsourcing decisions from 52,191 establishments with over 100 employees at the end of 2002, for two types of IT services: programming and design and hosting. Supply of programming and design services are more sensitive to increases in local market demand than are providers of hosting services, and the probability of outsourcing programming and design is increasing the local supply of outsourcing, but the outsourcing of hosting is not. This suggests that hosting services are more tradable than programming and design, and there is some irreducible non-tradable or "local" component to programming and design services