Working Paper

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

Published on 1 January 2013

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 emphasises proximity, quality differentiation and weaker rule of law as OP determinants. Results suggest relationship-specific investments and monitoring under OP may offset contractual uncertainty.


Dirk Willenbockel

Research Fellow

Xavier Cirera

Research Fellow

Publication details

published by
Department of Economics
Petropoulou, D., Cirera, X. and Willenbockel, D.


About this publication

OECD Europe

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