Goernments contract out and outsource as it is cheaper for them. Often government employees are receiving better pay and other benefits than those in the private sector. To let priate companies do the work, which earlier had been done by civil servants, the state saves resources for pay and pensions and other benefits. Especially lower categories of staff are contracted out. This is not only done by states, even private companies contract out some parts of their work. The securiy services of your University is partly contracted out, the cleaning services, etc.

Some literature, which at least touches the topic

Firth, S. (2007). Pacific islands trade, labor, and security in an era of globalization. The Contemporary Pacific, 19(1), 111-134.

Fitzgerald, R. (1988). When government goes private: Successful alternatives to public services. Universe Pub.

Appana, S. (2003). New public management and public enterprise restructuring in Fiji. Fijian Studies: A Journal of Contemporary Fiji, 1(1), 51.

Sarker, A. E., & Pathak, R. D. (2003). Public enterprise reform in Fiji Islands. Public Organization Review, 3(1), 55-75.

McMaster, J. (2001). Public enterprise reform in Fiji: policy implementation and reversals. Asian Journal of Public Administration, 23(2), 229-246.

Sharma, U., & Lawrence, S. (2009). Global remedies for local needs: Corporate governance and public sector reforms in Fiji. Pacific Accounting Review, 21(3), 260-285.

Sutherland, W. (2000). Global imperatives and economic reform in the Pacific Island States. Development and Change, 31(2), 459-480.

Reddy, M., Prasad, B. C., Sharma, P., Vosikata, S., & Duncan, R. (2004). Understanding reform in Fiji. Study commissioned by the Global Development Network. The Foundation for Development Cooperation, Suva.

Eberhard Weber has given a pretty comprehensive list of  references. The reasons he  gives are ones with which I agree.One of the more recent areas that has been outsourced is R&D. That is significant as R&D is considered to a company's core function and rarely outsourced. But if firms are outsourcing R&D, there must be a compelling reason.

A couple of years ago, I proposed a study on the outsourcing of R&D. As some Netherlands companies were already doing that  and several others were interested, our study examined outsourcing of R&D to India by western companies. We were  surprised to find that many US companies had already started doing that well before Netherlands( or Dutch) companies. The reason was simple: India had STEM ( science, technology, engineering and mathematic/medical) graduates in abundance and Netherlands was not producing enough; further the wage costs were low, about 1/5 of Netherlands costs. While it is a 40-hour week in The Netherlands, it is about 50-60 or even 70 hours a week in India. Clearly the economics of outsourcing is readily evident. Waiting time for results get shorter and that adds to the economic benefits as well.

We found that outsourced  R&D work included work on aircraft engines, computing and microprocessors, medical equipment development,  biotechnology and biopharmaceuticals, reverse engineering, work to bypass patents, etc.

The report was considered significant enough that it contained a foreword  from The Netherlands Minister for Economics Affairs who stressed on the importance of Dutch companies doing what firms from other countries were already doing,  to leverage on talent in that country.

Finally,  according to a recent New York Times  report, IBM has more people working in India than in the US (130K in India out of a total 380K worldwide ; Oracle: 40K in India out of  a total of 138K).

IBM is not really outsourcing as it has its own facilities, as do Oracle, and Microsoft, and Google. The appropriate label could be "off-shoring"  instead.

Howells, J. (1999).  Research and technology outsourcing. Technology Analysis & Strategic Management. 11(1), 18-29.

Quinn, J.B. (2000). Outsourcing innovation: The new engine of growth. Sloan Management Review,  41,  (4), 13-28.

Positive aspect: Reducing the cost and long-term liabilities for the governments such as pensions and other social security costs as well as cheaper human resource through competition.

Negative aspect: No institutional memory, frequent turn-over, and lower accountability.