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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. Trabold, Harald & Parvati Trubswetter & Philipp J H Schroder, 2003. "Intermediation in Foreign Trade: When do Exporters Rely on Intermediaries?," Royal Economic Society Annual Conference 2003 206, Royal Economic Society.
  2. Horst Raff & Nicolas Schmitt, 2009. "Buyer Power in International Markets," CESifo Working Paper Series 2755, CESifo Group Munich.
  3. Sebastian Krautheim, 2013. "Export-supporting FDI," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
  4. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, August.
  5. Paul R. Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," NBER Working Papers 11637, National Bureau of Economic Research, Inc.
  6. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
  7. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Product Switching," CEP Discussion Papers dp0736, Centre for Economic Performance, LSE.
  8. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  9. 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.
  10. Horst Raff & Nicolas Schmitt, 2004. "Exclusive Dealing and Common Agency in International Markets," CESifo Working Paper Series 1168, CESifo Group Munich.
  11. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  12. Gordon H. Hanson & Chong Xiang, 2002. "The Home Market Effect and Bilateral Trade Patterns," NBER Working Papers 9076, National Bureau of Economic Research, Inc.
  13. Gordon H. Hanson & Robert C. Feenstra, 2001. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," NBER Working Papers 8088, National Bureau of Economic Research, Inc.
  14. Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  15. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  16. Horst Raff & Nicolas Schmitt, 2000. "Endogenous Vertical Restraints in International Trade," Discussion Papers dp00-04, Department of Economics, Simon Fraser University, revised Feb 2000.
  17. 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.
  18. 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.
  19. repec:cup:cbooks:9780521736602 is not listed on IDEAS
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