Quality Differentiation and Trade Intermediation
AbstractExisting studies show that intermediaries can help verify or screen product quality for buyers. This paper examines this claim both theoretically and empirically in the context of international trade. We develop a heterogeneous-firm model that features vertical and horizontal differentiations of products, a coexistence of direct exporting and indirect exporting through intermediaries, and firms' investment in quality signaling. When complete contracts are not available, intermediaries underinvest in quality signaling from the perspective of the producer. For products that are more horizontally differentiated, competition is less intense and even low-quality firms export via intermediaries. These two mechanisms yield a negative (positive) cross-product relation between vertical (horizontal) differentiation and the prevalence of trade intermediation. Intermediation is more prevalent in the more (both physically and culturally) distant destinations, more so for the more vertically and horizontally differentiated products. Using detailed product-level data from China, we find supporting evidence for these predications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0771.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: Medford, MA 02155, USA
Phone: (617) 627-3560
Fax: (617) 627-3917
Web page: http://ase.tufts.edu/econ
Trade intermediation; vertical differentiation; product differentiation;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
- NEP-BEC-2012-10-06 (Business Economics)
- NEP-COM-2012-10-06 (Industrial Competition)
- NEP-INT-2012-10-06 (International Trade)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Araujo, Luis & Mion, Giordano & Ornelas, Emanuel, 2012.
"Institutions and Export Dynamics,"
CEPR Discussion Papers
8809, C.E.P.R. Discussion Papers.
- Jennifer Abel-Koch, 2013.
"Who Uses Intermediaries in International Trade? Evidence from Firm-level Survey Data,"
The World Economy,
Wiley Blackwell, vol. 36(8), pages 1041-1064, 08.
- Jennifer Abel-Koch, . "Who uses intermediaries in international trade? Evidence from firm-level survey data," Discussion Papers 11/25, University of Nottingham, GEP.
- Heiwai Tang & Yifan Zhang, 2011.
"Exchange Rates and the Margins of Trade: Evidence from Chinese Exporters,"
392011, Hong Kong Institute for Monetary Research.
- Heiwai Tang & Yifan Zhang, 2012. "Exchange Rates and the Margins of Trade: Evidence from Chinese Exporters," CESifo Economic Studies, CESifo, vol. 58(4), pages 671-702, December.
- Fan, Haichao & Li, Yao Amber & Yeaple, Stephen, 2013. "Trade Liberalization, Quality, and Export Prices," MPRA Paper 51370, University Library of Munich, Germany.
- Rollo, Valentina, 2012. "Determinants of Tanzanian export prices," Policy Research Working Paper Series 6225, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Kalogeropoulos).
If references are entirely missing, you can add them using this form.