What explains indirect exports of goods and services in Eastern Europe and Central Asia?
This paper investigates the determinants of indirect exporting, using firm-level data for 27 countries in Eastern Europe and Central Asia. Indirect exporting depends on a combination of fixed and variable trade cost factors. We first hypothesize that firms that perceive customs, transportation, crime and legal systems as severe obstacles anticipate higher fixed costs and are more likely to export indirectly. The second hypothesis is that indirect exporting tends to be a temporary strategy. Econometric models are used to test the first hypothesis and transition matrices to test the second. In particular, probit, Heckman-probit and fractional response models are estimated to analyse the determinants of the export mode and the share of indirect exports. The results indicate that the factors that account for the fixed cost of exporting, mainly affect the decision to export indirectly (extensive margin), but some of them also affect, to a lesser extent, the amount exported indirectly (intensive margin). More specifically, factors such as customs and trade restrictions and transportation obstacles affect the extensive margin only, whereas crime affects both margins. Secondly, trade agreement membership mainly affects trade in manufactured goods, while exchange rate volatility affects positively the extensive and intensive margin of indirect exports of services. The results also indicate that firms are more likely to change their status as an indirect exporter than they are to change their status as a direct exporter or a non-exporter, which provides support to the second hypothesis.
KeywordsIntermediaries Indirect exporting Eastern Europe Central Asia Uncertainty
JEL ClassificationF14 F15 L22 O24
I would like to thank the comments and suggestions received from two anonymous referees and from the participants in the 1st Meeting on International Economics at the University Jaume I. Financial support from the Spanish Ministry of Economy and Competitiveness is grateful acknowledged (ECO2014-58991-C3-2-R).
- Akerman A (2014) A theory on the role of wholesalers in international trade based on economies of scope. Res Papers Econ 1–47Google Scholar
- Darvas Z (2012) Real effective exchange rates for 178 countries: a new database. Working Paper 2012/06, Bruegel, 15 Mar 2012. http://www.bruegel.org/publications/publication-detail/publication/716-real-effective-exchange-rates-for-178-countries-a-new-database/
- Roodman D (2011) Estimating fully observed recursive mixed-process models with cmp. Stata J 11:159–206Google Scholar
- Zerihun S (2012) A firm’s choice between direct and indirect export channel of exports by: a study of manufacturing firms in sub Saharan African Economies. Available at SSRN 2167982Google Scholar