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Indirect exporters and importers

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Abstract

This paper analyses the relation between firms’ productivity and the different modes of participation in international trade. In particular, it accounts for the possibility that firms can not only export their products, but also internationally source their inputs, either directly or indirectly. Using a cross section of firm level data for several advanced and developing economies, the study confirms the productivity-sorting prediction according to which domestic firms are less efficient than those that resort to an export intermediary, while the latter are less productive than producers which export directly. We show that the same sorting exists on the import side. By considering firms involved in both exporting and importing activities, we also find that direct two-way traders are on average more productive than firms trading indirectly on one of the two trade sides. The latter are in turn more efficient than indirect two-way traders. Finally, we investigate the effects of source-country characteristics on the sorting of firms into different modes of international trade.

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Notes

  1. As emphasized by Bernard et al. (2010b), there also exist firms that engage in a mix of those activities.

  2. However, McCann (2009) obtained a different ranking for a large panel of Irish manufacturing firms. Indeed, two-way traders and only exporters were found to be the most productive firms, with a significant gap between them and only importers and non-traders.

  3. Early theoretical work on the role of intermediaries in international trade, e.g. Rauch and Watson (2004) and more recently Petropoulou (2011), models international trade as an outcome of search and networks.

  4. Kugler and Verhoogen (2012) observe a positive relationship among plant size, input and output prices using a representative sample of Colombian manufacturing firms. The assumption that marginal costs increase in output quality is also supported by the empirical results set out in Brambilla et al. (2012). These authors find a positive relationship between the income level of destination countries, proxying consumers’ preference for high-quality goods, and the wages of workers employed by Argentinean exporters.

  5. All data are freely accessible to researchers at http://www.enterprisesurveys.org.

  6. Unfortunately, not all the analyses could be conducted on the pooled data because the information contained in the two standardized datasets did not completely overlap.

  7. The cleaning procedures are described in “Appendix 1”, the Stata do file used to replicate the analysis is available upon request.

  8. This high-income group consists of Argentina, Germany, Greece, Ireland, Oman, Portugal, Slovenia, Spain, and South Korea. GDP per capita, constant 2000 US$, downloaded from http://data.worldbank.org/indicator. Countries belonging to “High Income” groups are marked in Tables 1 and 2 with *.

  9. We thank an anonymous referee for the suggestion to investigate the distribution of the shares of direct and indirect exports further.

  10. The very few firms that are both direct and indirect exporters are assigned to the category direct (indirect) if the share of direct exports is bigger (smaller) than the share of indirect exports. The same procedure is applied to importers.

  11. The share of indirect exporters for High Income is 5.5 %.

  12. Note that the data at our disposal do not allow decomposition of total exports (imports) across different destinations (country of origin).

  13. Details on the construction of such variables to account for country-level fixed costs are provided in Bernard et al. (2015).

  14. Producers may export indirectly through wholesale firms or through other manufacturing firms, so-called “carry-along trade” (Bernard et al. 2012). We could not distinguish between these modes of indirect export in the BEEPS data.

  15. We use sales because the data does not include measures of value added.

  16. The BEEPS Standardized Data 2006–2011 does not contain the break-down of input purchases into domestic, indirect and directly imported. Hence it is possible to replicate only the analysis on the export side.

  17. We do not replicate the analysis for high-income countries because the sample sizes become too small within some cells.

  18. Note that our results are roughly consistent with those of Davies and Jeppesen (2015) even if we consider a different wave of Enterprise Surveys.

  19. As described in Sect. 3 there exists a source-specific market costs for exporting and a source-specific market costs for importing. Hence, for two-way traders we consider the average between the cost of importing and the cost of exporting. Note also that the correlation between the two measures of cost is rather high (93 %) so that employing one or the other does not change the results.

  20. Stata do files with the cleaning procedures and regressions are available upon request.

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Acknowledgments

We thank Andrew B. Bernard for insightful discussions and an anonymous referee. Marco Grazzi gratefully acknowledges Fondazione Cassa dei Risparmi di Forl, Grant ORGANIMPRE, for financial support. The usual disclaimer applies.

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Authors and Affiliations

  1. Department of Economics, University of Bologna, Bologna, Italy

    Marco Grazzi

  2. Department of Economics, Università degli Studi di Trento, Via Inama, 5, 38122, Trento, Italy

    Chiara Tomasi

  3. LEM, Scuola Superiore S.Anna, Pisa, Italy

    Chiara Tomasi

Authors
  1. Marco Grazzi
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  2. Chiara Tomasi
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Correspondence to Chiara Tomasi.

Appendix

Appendix

1.1 Appendix 1: Variables description and data cleaning

The empirical analysis was performed employing the dataset “Standardized data 2002–2005” which was downloaded from www.enterprisesurveys.org. Although a more recent dataset is available, covering the period 2006–2014, it does not contain the breakdown for the purchase of material inputs into domestic, indirectly, and directly imported. The dataset originally contains 71,789 observations from 151 countries.Footnote 20 Once we focus on firms in the manufacturing sectors we are left with 45,137 observations from 102 countries. Removing firms without information on the breakdown of sales (purchase of inputs) drops 1096 (10,985) observations. We also drop more than 5000 observations not reporting either sales or employment. At this stage we are left with 27,298 observation from 95 countries, which is the total number of observation reported in Tables 1 and 2. In order to get rid of outliers which might bias the results we set as missing observations reporting with productivity, employment and sales figures smaller than the first and bigger that the 99th percentile on a year-country basis (some countries are surveyed in more than 1 years). Davies and Jeppesen (2015) also resort to a question of the 2006–2014 BEEPS dataset about the quality of the responses to the survey. The wave of the survey that we employ (2002–2005) does not contain such question (Table 9).

Table 9 Variables description
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1.2 Appendix 2: Robustness checks

See Tables 10 and 11.

Table 10 Employment and sales
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Table 11 Productivity sorting
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Grazzi, M., Tomasi, C. Indirect exporters and importers. Rev World Econ 152, 251–281 (2016). https://doi.org/10.1007/s10290-016-0245-1

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