<p>This paper examines the impact of political connections on firms’ make-or-buy decisions, focusing on outsourcing intensity. We develop a stylized model to illustrate two mechanisms. For small buyers, political connections mitigate bargaining disadvantages and increase the buyer’s share of revenue, which strengthens incentives to undertake headquarters investment and thus raises the attractiveness of outsourcing (a bargaining-power channel). For large buyers, political connections may increase the reputational costs of opportunistic behavior, thereby reducing hold-up risk, encouraging supplier investment, and increasing outsourcing (a reputational-discipline channel). For buyers of intermediate size, political connections have little effect, as such firms neither face severe bargaining disadvantages nor strong reputational constraints. Using data on Chinese listed firms from 2010 to 2020, we find evidence consistent with these mechanisms: political connections are associated with higher outsourcing intensity for small and large firms, while the relationship is weak for medium-sized firms.</p>