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A theory on the role of wholesalers in international trade based on economies of scope

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  • Anders Akerman

Abstract

This paper offers a theoretical foundation for the existence of wholesalers and other intermediaries in international trade and analyzes their role in an economy with heterogeneous manufacturing firms and fixed costs of exporting. Wholesalers are assumed to possess a technology such that they can buy manufacturing goods domestically and sell in foreign markets and they can, unlike manufacturers, export more than one good. A wholesaler therefore faces an additional fixed cost, which increases in the number of goods it handles. The presence of wholesale firms leads to productivity sorting. The most productive firms export on their own by paying a fixed cost, but a range of firms with intermediate productivity levels export through international wholesalers. A higher fixed cost of exporting to a destination means that wholesalers handle: (i) a higher share of total export volumes to this destination and (ii) a higher share of the exported product scope (i.e., the number of exported products) to this destination. A higher fixed cost of exporting gives wholesalers a larger role, since these can spread the fixed cost across more than one good. The wholesale technology therefore exhibits economies of scope. An empirical analysis using Swedish firm-level data supports the main assumption and predictions of the model.

Suggested Citation

  • Anders Akerman, 2018. "A theory on the role of wholesalers in international trade based on economies of scope," Canadian Journal of Economics, Canadian Economics Association, vol. 51(1), pages 156-185, February.
  • Handle: RePEc:cje:issued:v:51:y:2018:i:1:p:156-185
    DOI: 10.1111/caje.12319
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    File URL: https://doi.org/10.1111/caje.12319
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    References listed on IDEAS

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    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Wholesalers and Retailers in US Trade," American Economic Review, American Economic Association, vol. 100(2), pages 408-413, May.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Dimitra Petropoulou, 2007. "Information Costs, Networks and Intermediation in International Trade," Economics Series Working Papers 370, University of Oxford, Department of Economics.
    4. James E. Rauch & Joel Watson, 2004. "Network Intermediaries in International Trade," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 69-93, March.
    5. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1103-1144.
    6. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    7. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-423, May.
    8. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    9. Emek Basker & Pham Hoang Van, 2010. "Imports "Я" Us: Retail Chains as Platforms for Developing-Country Imports," American Economic Review, American Economic Association, vol. 100(2), pages 414-418, May.
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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