Trade intermediaries, incomplete contracts, and the choice of export modes

Gabriel Felbermayr and Benjamin Jung

No 317, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: 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.

Keywords: International trade; trade intermediation; heterogeneous firms; incomplete contracts (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Trade Intermediation and the Organization of Exporters (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:317

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