Defining, Measuring, Explaining and Reducing the Cost of International Trade
Since the late 1990s the important role of intermediaries in international trade has been increasingly recognized. In Japan in the mid-1990s, for example, trading companies accounted for 40 per cent of exports and 70 per cent of imports (Geoffrey Jones, 1998). Over half of China’s exports in the 1990s intermediated through Hong Kong (Robert Feenstra, Gordon Hanson and Songhua Lin, 2004; Robert Feenstra and Gordon Hanson, 2004). Andrew Bernard, Bradford Jensen, Stephen Redding and Peter Schott (2010) report heterogeneity among US exporters, with some firms exporting directly and others using intermediaries; large, vertically integrated firms engage in both production and intermediation in-house, reinforcing the idea that scale is important for intermediation. The phenomenon is relevant to trade costs. If intermediaries are necessary for some firms to participate in international trade, then they are a component of trade costs. On the other hand, intermediaries may be a symptom of high trade costs; if exporting and importing firms use intermediaries to cut through red tape and so forth, then the intermediaries may be trade facilitators who reduce actual trade costs. The picture is further complicated because some intermediaries provide far more than simply facilitating exports, and may be a crucial link in the value chain; e.g. Hong-Kong-based Li and Fung organize the Chinese production network for major jeans producers as well as organizing delivery to the markets. The nature of trade costs may determine the scope for intermediation. With pure ad valorem (iceberg) trade costs, it is less easy to explain intermediation...
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