<p>This study attempts to answer the question of whether European manufacturing firms that undertake offshoring, innovation or both benefit from higher productivity and profitability. From a methodological point of view, the driving forces that push firms to innovate and/or to offshore can be seen as self-selection mechanisms that make the estimation of their economic impact more difficult if the confounding factors affecting these mechanisms also affect the economic performance of the firms.

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... disentangle the effect of both offshoring and innovation on firms' performances from the effect of firm characteristics, the propensity score matching methodology in a multi-overlapping treatment setting is used.<strong> </strong>The study targets European countries using the EU-EFIGE/Bruegel-Unicredit dataset. Decisions to offshore and innovate do not seem to have a significant effect on productivity, whereas the decision to innovate only has a significant effect on firm profitability.<strong> </strong></p>