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

Author

Listed:
  • Dimitra Petropoulou

    (Department of Economics, University of Sussex, Brighton, United Kingdom)

  • Xavier Cirera

    (Institute of Development Studies, University of Sussex, Brighton, United Kingdom)

  • Dirk Willenbockel

    (Institute of Development Studies, University of Sussex, Brighton, United Kingdom)

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.

Suggested Citation

  • Dimitra Petropoulou & Xavier Cirera & Dirk Willenbockel, 2013. "The Determinants of Outward Processing: Evidence from Offshoring Intermediates by the European Union," Working Paper Series 5413, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:5413
    as

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    File URL: http://www.sussex.ac.uk/economics/documents/wps-54-2013.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Outward processing; offshoring; European Union;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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