The Determinants of Outward Processing: Evidence from Offshoring Intermediates by the European Union

Dimitra Petropoulou (), Xavier Cirera and Dirk Willenbockel

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: This paper analyses the determinants of outward processing (OP) trade; specifically, imports of intermediates subsequent to processing abroad. A model where firms choose between OP and importing intermediates directly from a third country (generic offshoring, GO) predicts higher tariffs, lower monitoring costs and higher quality make OP more likely, while better institutions and rule of law abroad lower contractual breakdown risk under GO making OP less likely. Analysis of EU trade data from 2002 to 2008 emphasizes proximity, quality differentiation and weaker rule of law as OP determinants. Results suggest relationship-specific investments and monitoring under OP may offset contractual uncertainty.

Keywords: Outward processing; offshoring; European Union (search for similar items in EconPapers)
JEL-codes: D23 F14 L23 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-eec, nep-eur and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:5413

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