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Trade intermediaries, incomplete contracts, and the choice of export modes

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  • Felbermayr, Gabriel J.
  • Jung, Benjamin

Abstract

The business literature suggests that exporters either use trade intermediaries or own foreign sales representations. Standard trade models are silent about this choice. We develop a model where producers differ with respect to competitive advantage and where trade intermediaries arise endogenously. Intermediaries allow producers to access a foreign market at lower fixed costs, but the lack of enforceable cross-country contracts reduces variable revenue. Producers select into different export modes along their characteristics. Relative prevalence of trade intermediation is stronger the bigger the risk of expropriation in the foreign country and the lower the severity of contractual frictions, the degree of heterogeneity amongst producers, and the elasticity of substitution between varieties. The volume of bilateral trade and the stock of FDI appear as complements in the model. Tentative empirical evidence confirms the main predictions. --

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Bibliographic Info

Paper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 317.

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Date of creation: 2008
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Handle: RePEc:zbw:tuedps:317

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Related research

Keywords: International trade; trade intermediation; heterogeneous firms; incomplete contracts;

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References

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  1. Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  2. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  3. Raff, Horst & Schmitt, Nicolas, 2005. "Endogenous vertical restraints in international trade," European Economic Review, Elsevier, vol. 49(7), pages 1877-1889, October.
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  5. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  6. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
  7. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  8. Philipp J. H. Schröder & Harald Trabold & Parvati Trübswetter, 2003. "Intermediation in Foreign Trade: When Do Exporters Rely on Intermediaries?," Discussion Papers of DIW Berlin 336, DIW Berlin, German Institute for Economic Research.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  10. Raff, Horst & Schmitt, Nicolas, 2004. "Exclusive Dealing and Common Agency in International Markets," Economics Working Papers 2004,09, Christian-Albrechts-University of Kiel, Department of Economics.
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  13. Horst Raff & Nicolas Schmitt, 2007. "Buyer Power in International Markets," Discussion Papers dp07-23, Department of Economics, Simon Fraser University.
  14. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  15. Robert C. Feenstra & Gordon H. Hanson, 2004. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 3-35, 03.
  16. Spulber,Daniel F., 2009. "The Theory of the Firm," Cambridge Books, Cambridge University Press, number 9780521736602, October.
  17. Claudia M. Buch & Jörn Kleinert & Alexander Lipponer & Farid Toubal, 2005. "Determinants and effects of foreign direct investment: evidence from German firm-level data," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 52-110, 01.
  18. Sebastian Krautheim, 2013. "Export-supporting FDI," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
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Citations

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Cited by:
  1. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with horizontally differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 324, University of Tübingen, School of Business and Economics.
  2. Frontczak, Robert & Schöbel, Rainer, 2009. "On modified Mellin transforms, Gauss-Laguerre quadrature, and the valuation of American call options," Tübinger Diskussionsbeiträge 320, University of Tübingen, School of Business and Economics.
  3. Frontczak, Robert & Schöbel, Rainer, 2008. "Pricing American options with Mellin transforms," Tübinger Diskussionsbeiträge 319, University of Tübingen, School of Business and Economics.
  4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Working Papers 12-18, Center for Economic Studies, U.S. Census Bureau.
  5. Frontczak, Robert, 2009. "Valuing options in Heston's stochastic volatility model: Another analytical approach," Tübinger Diskussionsbeiträge 326, University of Tübingen, School of Business and Economics.
  6. Maier, Ramona & Merz, Michael, 2008. "Credibility theory and filter theory in discrete and continuous time," Tübinger Diskussionsbeiträge 318, University of Tübingen, School of Business and Economics.
  7. Emily Blanchard & Tatyana Chesnokova & Gerald Willmann, 2013. "Private Labels and International Trade: Trading Variety for Volume," CESifo Working Paper Series 4133, CESifo Group Munich.
  8. JaeBin Ahn & Amit K. Khandelwal & Shang-Jin Wei, 2010. "The Role of Intermediaries in Facilitating Trade," NBER Working Papers 15706, National Bureau of Economic Research, Inc.
  9. Kunal Dasgupta & Jordi Mondria, 2012. "Quality Uncertainty and Intermediation in International Trade," Working Papers tecipa-462, University of Toronto, Department of Economics.
  10. Kleinert, Jörn & Zorell, Nico, 2010. "The export-magnification effect of offshoring," Tübinger Diskussionsbeiträge 330, University of Tübingen, School of Business and Economics.
  11. Heuer, Nina, 2010. "Occupation-specific south-north migration," Tübinger Diskussionsbeiträge 328, University of Tübingen, School of Business and Economics.
  12. Zaby, Alexandra K., 2009. "The propensity to patent in oligopolistic markets," Tübinger Diskussionsbeiträge 323, University of Tübingen, School of Business and Economics.
  13. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with vertically differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 325, University of Tübingen, School of Business and Economics.

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