Who Uses Intermediaries in International Trade? Evidence from Firm‐level Survey Data

Abstract

The present paper uses data from the World Bank Enterprise Survey conducted in Turkey in 2005 to shed light on the firms that use intermediaries in international trade. It lends robust empirical support to recent theories which suggest that indirect exporters are mostly small firms that are not profitable enough to cover the high fixed costs of building an own distribution network abroad. Manufacturers who develop new products are more likely to use trade intermediaries, as are firms that produce low‐quality goods. In contrast, neither foreign ownership nor credit constraints are correlated with the choice of export mode. Moreover, firms that rely on trade intermediaries to sell their goods abroad also do so to source their foreign inputs, implying that the role of intermediaries in facilitating trade may be larger than previous studies suggest.

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

“…Finally, wholesalers play a more important role in aggregate exports (both in terms of total volumes and product scope) from Sweden to countries characterized by higher fixed costs. The result for aggregate export volumes is in line with previous studies by Ahn et al () for China, Bernard et al () for Italy and Crozet et al () for France.…”

“…I t is by now a well‐known empirical regularity that wholesalers” other intermediaries account for a substantial share of exports from most countries and that they assist less productive firms in overcoming barriers to foreign markets. Recent research has shown that intermediary firms handle about 22% of aggregate Chinese export sales (Ahn et al, ), 10% of US and Italian exports (Bernard et al ), 20% of French exports (Crozet et al, ) and about 35% of imports into Chile (Blum et al, ). Feenstra and Hanson () examine the role of Hong Kong in re‐exporting goods from China during 1988–1998 and find that 53% of Chinese exports were shipped through Hong Kong as re‐exports.…”

“…Bernard et al () find that exporting firms in the US exhibit substantial heterogeneity as regards export mode, i.e., whether firms manage their own exporting activities or export through intermediaries. McCann () and Abel‐Koch () use East European and Turkish datasets, respectively, to find that “indirect” exporting (exporting through intermediaries) is correlated with important firm characteristics. Most importantly, the largest and most productive firms export directly while firms in the middle of the productivity distribution instead choose to export indirectly through an intermediary…”

“…This paper is most directly related to a growing literature that studies the effects of intermediary firms on international trade in a setting with heterogeneous producing firms. Ahn et al () introduce the choice of indirect exporting through an intermediary into a partial equilibrium model of firm heterogeneity along the lines of Melitz (). This new export mode is assumed to be associated with lower fixed costs but higher variable costs and therefore, it causes productivity sorting among producers regarding export mode.…”

Market Entry Mode: Evidence From the Golden Age of Hollywood

“…An exception is the World Bank data analyzed in Abel‐Koch () and McCann (). These data do not include information regarding to what markets goods are exported.…”