This paper fills this gap in knowledge on innovation outsourcing’s effect on productivity from more general industries in developing countries, by examining representative firms in manufacturing sector in Tunisia. In this paper, I analyse the determinants of a firm’s decision to invest in different sources of innovation, and the effects of these different sources on a firm’s final output, via productivity. Specifically, I answer the following questions: are there any differences in determinants of a firm’s decision to create and to buy? Are the effects on productivity different between create and buy; and if so, which source of innovation is more effective in increasing final output, via productivity?