Dalia Marin: A New International Division of Labor in Europe: Offshoring and Outsourcing to Eastern Europe

Europe is reorganizing its international value chain. I document these changes in Europe's international organization of production with new survey data of Austrian and German firms investing in Eastern Europe. I show estimates of the share of intra-firm trade between Austria and Germany on the one hand and Eastern Europe on the other. Furthermore, I present empirical evidence of the drivers of the new division of labor in Europe. I find among other things that falling trade costs and falling corruption levels as well as improvements in the contracting environment in Eastern Europe are affecting the level of intra-firm imports from Eastern Europe. They are also favoring outsourcing over offshor-ing. Low organizational costs of hierarchies and large costs of holdup (when there are no alternative investors in Old Europe or no alternative suppliers in Eastern Europe) are favoring offshoring over outsourcing. Tax holidays granted by host countries in Eastern Europe also mildly affect the organizational choice. Eastern Europe, empirical test of the theory of the firm We thank participants of the session " The Empirics of Global Sourcing " for helpful comments and Thorsten Hansen and Alexander Raubold for excellent research assistance. Financial support by the German Science Foundation through GESY SFB/TR 15 and through a research grant is gratefully acknowledged.