Intermediaries in International Trade: Direct Versus Indirect Modes of Export
National Bank of Belgium Working Paper No. 199
43 Pages Posted: 17 Oct 2010 Last revised: 8 Mar 2012
Date Written: October 1, 2010
This paper examines the factors that give rise to intermediaries in exporting and explores the implications for trade volumes. Export intermediaries such as wholesalers serve different markets and export different products than manufacturing exporters. In particular, high market-specific fixed costs of exporting, the (lack of) quality of the general contracting environment and product- specific factors play important roles in explaining the existence of export intermediaries. These underlying differences between direct and intermediary exporters have important consequences for trade flows. The ability of export intermediaries to overcome country and product fixed costs means that they can more easily respond along the extensive margin to external shocks. Intermediaries and direct exporters respond differently to exchange rate fluctuations both in terms of the total value of shipments and the number of products exported as well as in terms of prices and quantities. Aggregate exports to destinations with high shares of indirect exports are much less responsive to changes in the real exchange rate than are exports to countries served primarily by direct exporters.
Keywords: heterogeneous firms, international trade, intermediation, wholesalers, export entry costs, product adding and dropping, exchange rates
JEL Classification: D22, F12, F14, L22, L23
Suggested Citation: Suggested Citation