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Parisa Kamali
In many countries, a sizable share of international trade is carried out by intermediaries. While large firms tend to export to foreign markets directly, smaller firms typically export via intermediaries (indirect exporting). I document a set of facts that characterize the dynamic nature of indirect exporting using firm-level data from Vietnam and develop a dynamic trade model with both direct and indirect exporting modes and customer accumulation. The model is calibrated to match the dynamic moments of the data. The calibration yields fixed costs of indirect exporting that are less than a third of those of direct exporting, the variable costs of indirect exporting are twice higher, and demand for the indirectly exported products grows more slowly. Decomposing the gains from indirect and direct exporting, I find that 18 percent of the gains from trade in Vietnam are generated by indirect exporters. Finally, I demonstrate that a dynamic model that excludes the indirect exporting channel will overstate the welfare gains associated with trade liberalization by a factor of two.
International Monetary Fund. External Relations Dept.

—and the frequency of observations in some of these variables is small. IMF S urvey: In seeking explanations for productivity gains associated with exporting, you compared the productivity of different types of manufacturing exporters in these three African countries—direct and indirect exporters, exporters outside Africa, and exporters within the region. What did you find? P attillo: We found that direct exporters—firms in direct contact with their foreign clients—were, on average, four times more productive than indirect exporters—those that exported through

International Monetary Fund. Research Dept.

-sized companies. For example, nearly 20 percent of Chinese and French exports and about 10 percent of Italian, US, and Vietnamese exports are carried out by intermediaries. Firms that export via intermediaries, so-called indirect exporters, tend to be smaller and less productive than direct exporters. While much has been documented about the static characteristics of these firms, little is known about their business dynamics and prospects over time. Once firms start exporting indirectly, do they grow over time? Do they eventually become direct exporters (exporting without

Parisa Kamali

1 Introduction Trade intermediaries account for a non-trivial share of total exports. For example, nearly 20 percent of Chinese and French exports ( Ahn, Khandelwal, and Wei (2011) and Crozet, Lalanne, and Poncet (2013) ), and around 10 percent of U.S. and Italian exports ( Bernard, Jensen, Redding, and Schott (2012b) and Bernard, Grazzi, and Tomasi (2011) ) are carried by intermediaries. Firms that export via intermediaries are known as indirect exporters. Previous empirical research has shown that these exporters tend to be smaller and less productive

Parisa Kamali

the gains from indirect and direct exporting, I find that 18 percent of the gains from trade in Vietnam are generated by indirect exporters. Finally, I demonstrate that a dynamic model that excludes the indirect exporting channel will overstate the welfare gains associated with trade liberalization by a factor of two. JEL classifications: F12, F14. Keywords: indirect exporting, direct exporting, customer accumulation, variable costs, bilateral trade liberalization, welfare gains, tariff revenues, Vietnam. Contents 1 Introduction 2 Data and

Mr. Taye Mengistae and Catherine Patillo

exporters. The first of these consists of direct exporters, that is, exporters who are in direct contact with their foreign clients rather than supplying international markets through domestic intermediaries. The second subgroup consists of those who directly export to destinations outside of Africa, as opposed to those confined to markets within the region. In Section III, the paper compares the productivity of direct and indirect exporters, and of exporters to outside of Africa and within the region. The idea is that looking at different types of exporters forces us

International Monetary Fund. Research Dept.
It has been two years since the trade tensions erupted and not only captured policymakers’ but also the research community’s attention. Research has quickly zoomed in on understanding trade war rhetoric, tariff implementation, and economic impacts. The first article in the December 2019 issue sheds light on the consequences of the recent trade barriers.
Mr. Liam P. Ebrill, Mr. Michael Keen, and Ms. Victoria J Perry

applied to exporters and their suppliers (so called indirect exporters), have been implemented in a few developing countries (mainly in Asia), in an attempt to deal with cash flow problems resulting from excessively slow refund of excess VAT credits. Similar schemes also apply in some developed countries’ VAT systems (such as the Irish and the Netherlands VAT systems; see below). However, while EU countries can afford the administrative burden of such complex mechanisms, developing countries with weak administrative capacity clearly cannot. Indeed, in those developing