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Trade Intermediation and the Organization of Exporters

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  • Gabriel J Felbermayr

    ()

  • Benjamin Jung

    ()

Abstract

The business literature shows that exporting firms typically require the help of foreign trade intermediaries or need to set up own foreign wholesale affiliates. In contrast, conventional trade theory models assume that producers can directly access foreign consumers. This paper models the endogenous emergence of intermediaries in an international trade model where producers differ with respect to productivity as well as regarding their varieties' perceived quality and tradability. We assume that trade intermediation is prone to frictions due to the absence of enorceable cross-country contracts while own wholesale subsidiaries require capital investment. We derive the sorting pattern of firms according to their degree of competitive advantage and show how the relative prevalence of intermediation depends on the degree of heterogeneity among producers, on the importance of market-specificity of goods, or on expropriation risk. We use US export data for 50 sectors and 133 destination countries to check the empirical validity of this predictions and find robust empirical support. JEL classifcation: F12, F23

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Bibliographic Info

Paper provided by Department of Economics, University of Hohenheim, Germany in its series Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim with number 309/2009.

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Length: 35 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:hoh:hohdip:309

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Web page: http://www.uni-hohenheim.de/institution/institut-fuer-economics-11
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Keywords: Trade intermediation; international trade; heterogeneous rms; incomplete contracts.;

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  1. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  2. Gabriel J Felbermayr & Benjamin Jung, 2009. "Trade Intermediation and the Organization of Exporters," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 309/2009, Department of Economics, University of Hohenheim, Germany.
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  10. Dimitra Petropoulou, 2011. "Information costs, networks and intermediation in international trade," Globalization and Monetary Policy Institute Working Paper 76, Federal Reserve Bank of Dallas.
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  21. Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
  22. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
  23. Paul Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," Working Papers 514, University of California, Davis, Department of Economics.
  24. Jennifer Abel-Koch, 2011. "Firm Size and the Choice of Export Mode," Working Papers 1105, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 29 Mar 2011.
  25. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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