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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.

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File URL: http://www.sussex.ac.uk/economics/documents/wps-54-2013.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Sussex in its series Working Paper Series with number 5413.

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Date of creation: Jan 2013
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Handle: RePEc:sus:susewp:5413

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Related research

Keywords: Outward processing; offshoring; European Union;

Find related papers by 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

This paper has been announced in the following NEP Reports:

• NEP-ALL-2013-01-12 (All new papers)
• NEP-EEC-2013-01-12 (European Economics)
• NEP-EUR-2013-01-12 (Microeconomic European Issues)
• NEP-INT-2013-01-12 (International Trade)

References

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