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Working Paper

The Determinants of Outward Processing Exports in the European Union

Published on 1 January 2011

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.

Authors

Image of Xavier Cirera
Xavier Cirera

Research Fellow

Image of Dirk Willenbockel
Dirk Willenbockel

Research Fellow

Publication details

published by
IDS
authors
Cirera, X. and Willenbockel, D.

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About this publication

Region
OECD Europe

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