The effects of trade intermediaries on firms’ export market diversification: Evidence from China

Abstract

The effects of trade intermediaries on firms’ export market diversification have not been explored sufficiently. Inspired by some evidence of trade intermediaries, we argue that they can positively and negatively affect firms’ export market diversification. They can facilitate market entry by transferring knowledge. However, they also deter firms’ market entry by setting up discriminatory market barriers. Using a merged dataset from Chinese Customs Trade Statistics (CCTS) and China’s Annual Surveys of Industrial Firms (ASIF), we identify the mixed effects of trade intermediaries.

KEYWORDS:

• Trade intermediaries
• export diversification
• knowledge transfer
• discriminatory market barriers
• China

JEL CLASSIFICATIONS:

• R11
• R1
• R

Acknowledgments

The authors wish to thank the support of Chinese Academy of Sciences, the Natural Science Foundation of China and the comments of the editors and reviewer.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study is available on request from the corresponding author. The data is not publicly available due to privacy or ethical restrictions.

Notes

1 For instance, firms can sell their products to trade intermediaries for international resale.

2 According to Ahn, Khandelwal, and Wei (2011), the search costs are usually smaller than the total market entry costs since the search usually happens in the same country.

3 For instance, trade intermediaries need to conduct staff training to improve their business skills in a foreign environment.

4 According to our econometric strategy, all independent variables lagged by one year. As a result, the time range of the independent variables is between 2001 and 2010 and the time range of the dependent variable (Entry) is between 2002 and 2011. As the CCTS not only provides information on the dependent variables (Entry) but also information on independent variables, the time range of CCTS is between 2001 and 2011. For example, CCTS not only shows the export share of trade intermediaries (Pro) in 2001–2010 but also shows firms’ market expansion (Entry) during 2002–2011.

5 As mentioned in Section 3.1, we identify the trade intermediaries in CCTS data by exporters’ names. Therefore, we can obtain the export share of trade intermediaries by counting the export value of trade intermediaries and total exporters.

6 We use a set of fixed effects ${\theta }_{i,p}$ to control for time-varying firm-level characteristics. Given that the basic time unit of our model is one year, to avoid multicollinearity, we define two years as a period, and we think that firms’ characteristics do not change considerably in two years. For example, year 2001 and 2002 are considered one period and the remaining years are considered in the same manner.

7 For instance, if a firm exports through trade intermediaries in year 1, but not in year 2, it will be included in our sample pools, and vice versa.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant number 41731278]; Priority Research Program of Chinese Academy of Sciences [grant number XDA20010102].