Pass-On Trade: Why Do Firms Simultaneously Engage in Two-Way Trade in the Same Varieties?

Katholieke Universiteit Leuven, LICOS Discussion Paper No. 312/2012

42 Pages Posted: 16 Jun 2012

See all articles by Jože P. Damijan

Jože P. Damijan

University of Ljubljana, Slovenia - Department of International Economics

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Saao Polanec

University of Ljubljana - Faculty of Economics

Date Written: May 1, 2012

Abstract

This paper documents that a large fraction of trade flows at the firm level consists of simultaneous imports and exports in identical products, narrowly defined at the 8-digit product classification, which we call Pass-On Trade, POT. We use data on imports and exports at the firm–product level for Slovenian manufacturing firms in the period 1994-2008, to show that, on average, 70 percent of all exporting firms engage in POT. This corresponds to more than 50 percent of all exported products. Thus, imported products that are exported again by the same firm is a statistical regularity of trade of Slovenian manufacturing firms. We document that the use of POT is increasing in firm size, product diversification, multinational status as well as firm productivity and profitability. We offer and explore empirically a number of explanations for POT. Among possible explanations, we find evidence on the importance of firms’ multinational networks and demand complementarities between firms’ own and POT products. The latter confirms the theoretical explanations for ‘Carry-Along Trade’ (CAT) as developed by the recent work of Bernard et al (2010, 2012).

Keywords: pass-on trade, multi-product firms, two-way trade

JEL Classification: R10, R15

Suggested Citation

Damijan, Joze P. and Konings, Jozef and Polanec, Saso, Pass-On Trade: Why Do Firms Simultaneously Engage in Two-Way Trade in the Same Varieties? (May 1, 2012). Katholieke Universiteit Leuven, LICOS Discussion Paper No. 312/2012. Available at SSRN: https://ssrn.com/abstract=2084636 or http://dx.doi.org/10.2139/ssrn.2084636

Joze P. Damijan (Contact Author)

University of Ljubljana, Slovenia - Department of International Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 61 189 24 00 (Phone)
+386 61 189 26 98 (Fax)

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium
+32 16 326 589 (Phone)
+32 16 326 599 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Saso Polanec

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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