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Trade Intermediation, Financial Frictions, and the Gains from Trade

Jackie M.L. Chan

No 15-009, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper develops a heterogeneous firm model of international trade with trade intermediation and financial frictions. Indirect exporting through intermediaries entails lower fixed costs but larger variable costs, and thus intermediaries alleviate financial frictions which magnify the fixed cost of exporting. The model finds strong empirical support in firm-level data on indirect exports for 118 countries as well as country-level data on entrepôt trade through Hong Kong for over 50 countries. Financially more constrained exporting firms and financially less developed countries are more likely to use trade intermediaries. Both of these effects are stronger in financially more vulnerable industries. Calibrating a two-country version of the model in general equilibrium for China and US reveals important gains from trade intermediation. When indirect exporting is eliminated from China, welfare, exports, and the share of exporting firms fall by 0.24%, 18%, and 59% respectively.

Keywords: intermediaries; indirect exports; financial constraints; gains from trade; Hong Kong. (search for similar items in EconPapers)
JEL-codes: F10 F14 F36 G20 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-ban, nep-bec and nep-int
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