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

  • Felbermayr, Gabriel J.
  • Jung, Benjamin

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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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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  1. Horst Raff & Nicolas Schmitt, 2009. "Buyer Power in International Markets," CESifo Working Paper Series 2755, CESifo Group Munich.
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  4. Horst Raff & Nicolas Schmitt, 2000. "Endogenous Vertical Restraints in International Trade," Discussion Papers dp00-04, Department of Economics, Simon Fraser University, revised Feb 2000.
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  16. repec:cup:cbooks:9780521736602 is not listed on IDEAS
  17. Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  18. 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.
  19. 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.
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