Trade Intermediation, Financial Frictions, and the Gains from Trade

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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 costs of exporting. The model finds strong empirical support in firm-level data on indirect exports for over 100 countries as well as country-level data on entrepot 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, with both of these effects 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. JEL Classification: F10, F14, F36, G20 Keywords: intermediaries, indirect exports, financial constraints, gains from trade, Hong Kong Click here to view paper. Click here to view paper.
		PRESENTER Chan Man Lung, Jackie Chinese University of Hong Kong
		RESEARCH FIELDS International Trade, International Economics, Macroeconomics
		DATE: 31 Aug 2016 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903