Intermediaries in International Trade: Direct versus indirect modes of export
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.
The present work has been possible thanks to a research agreement between the Italian Statistical Office (ISTAT) and the Scuola Superiore Sant'Anna. Grazzi and Tomasi gratefully acknowledge financial support from the European Commission 6th FP (Contract CIT3-CT-2005-513396), Project: DIME - Dynamics of Institutions and Markets in Europe. Tomasi gratefully acknowledges financial support by the Marie Curie Program Grant COFUND Provincia Autonoma di Trento. Bernard acknowledges support from the European University Institute and the Tuck School of Business. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.