Entry Barriers to International Trade: Product versus Firm Fixed Costs.

Abstract Recent studies suggest that intermediaries like merchants facilitate international trade by reducing fixed trade costs for producers that trade through them instead of exporting or importing directly. This study argues that customs brokers–a type of intermediary rarely studied in economics before–play a similar role by reducing fixed costs of clearing goods through customs for firms that use them instead of self-declaring. Using panel data of Norwegian trade transactions, the paper shows that the majority of manufacturing producers participating in international trade use such brokers, and that the brokers typically handle large trade values on behalf of several different produces. In an econometric analysis, the author finds that the share of a producer’s market specific trade that is self-declared rather than handled by brokers increases with the traded value. This is in line with predictions from theoretical models on trade intermediaries and holds after controlling for observed as well as unobserved factors at the producer, country and product level. Results are similar for exporting and importing, indicating that brokers facilitate both modes of trade.

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Market size and entry in international trade: Product versus firm fixed costs

Review of International Economics ◽

10.1111/roie.12427 ◽

2019 ◽

Vol 27 (5) ◽

pp. 1351-1370

Author(s):

Walter Steingress

Keyword(s):

International Trade ◽

Market Size ◽

Fixed Costs

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Financial Development, Fixed Costs, and International Trade

The Review of Corporate Finance Studies ◽

10.1093/rcfs/cfs005 ◽

2012 ◽

Vol 2 (1) ◽

pp. 1-28 ◽

Cited By ~ 39

Author(s):

Bo Becker ◽

Jinzhu Chen ◽

David Greenberg

Keyword(s):

International Trade ◽

Exchange Rates ◽

Product Design ◽

Financial Development ◽

Financial System ◽

Fixed Costs ◽

Specific Investments ◽

Trade Dynamics

Exports require significant up-front costs in product design, marketing, and distribution. These are intangible, firm-specific investments that are likely difficult to finance externally. We argue that a developed financial system can therefore facilitate exports. We test this prediction and find support for it. First, financial development is associated with more exports in industries in which fixed costs are high as well as to importers that require high costs. Second, trade dynamics are affected by financial development. In countries with better finance, exports are more sensitive to exchange rates. Finally, we predict and document that countries with more developed finance experience more volatile exports. (JEL F14, F36, G20, G30)

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Trade and Uncertainty

Review of Economics and Statistics ◽

10.1162/rest_a_00885 ◽

2020 ◽

Vol 102 (4) ◽

pp. 749-765 ◽

Cited By ~ 1

Author(s):

Dennis Novy ◽

Alan M. Taylor

Keyword(s):

International Trade ◽

Industrial Production ◽

Trade Flows ◽

Production Data ◽

Fixed Costs ◽

Economic Shocks ◽

Domestic Activity ◽

Uncertainty Shocks ◽

Great Trade Collapse ◽

Magnification Effect

We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the idea of uncertainty shocks with international trade. Firms order inputs from home and foreign suppliers. In response to an uncertainty shock firms disproportionately cut orders of foreign inputs due to higher fixed costs. In the aggregate, this leads to a bigger contraction in international trade flows than in domestic activity, a magnification effect. We confront the model with newly compiled US import and industrial production data. Our results help to explain the Great Trade Collapse of 2008–2009.

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Trade and Variety in a Model of Endogenous Product Differentiation

The B E Journal of Economic Analysis & Policy ◽

10.2202/1935-1682.2177 ◽

2009 ◽

Vol 9 (1) ◽

Cited By ~ 2

Author(s):

Oliver Lorz ◽

Matthias Wrede

Keyword(s):

International Trade ◽

Product Differentiation ◽

Market Size ◽

Fixed Costs ◽

Trade Integration ◽

Horizontal Differentiation ◽

Degree Of Differentiation ◽

Number Of Firms

Abstract This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they will supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation between these varieties.

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Exporting Through Intermediaries

IMF Working Papers ◽

10.5089/9781513519876.001 ◽

2019 ◽

Vol 2019 (302) ◽

Author(s):

Parisa Kamali

Keyword(s):

International Trade ◽

Trade Liberalization ◽

Fixed Costs ◽

Welfare Gains ◽

Dynamic Nature ◽

Foreign Markets ◽

Firm Level ◽

Trade Model ◽

Level Data ◽

Firm Level Data

In many countries, a sizable share of international trade is carried out by intermediaries. While large firms tend to export to foreign markets directly, smaller firms typically export via intermediaries (indirect exporting). I document a set of facts that characterize the dynamic nature of indirect exporting using firm-level data from Vietnam and develop a dynamic trade model with both direct and indirect exporting modes and customer accumulation. The model is calibrated to match the dynamic moments of the data. The calibration yields fixed costs of indirect exporting that are less than a third of those of direct exporting, the variable costs of indirect exporting are twice higher, and demand for the indirectly exported products grows more slowly. Decomposing the gains from indirect and direct exporting, I find that 18 percent of the gains from trade in Vietnam are generated by indirect exporters. Finally, I demonstrate that a dynamic model that excludes the indirect exporting channel will overstate the welfare gains associated with trade liberalization by a factor of two.

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