Abstract:
This paper assesses the determinants of European outward and inward processing trade. Thereby, it distinguishes between size, relative factor endowment, (other) cost factors and infrastructure variables. Using a large panel of bilateral processing trade flows of the EU12 countries at the aggregate level over the period 1988-1999, we find that infrastructure variables, relative factor endowments and other cost variables are important determinants for the EU's outward processing trade. Costs also play a key role for the EU's inward processing trade. Copyright Blackwell Publishing Ltd 2005.