Search Frictions and International Trade Intermediation

This paper studies the interaction of matching frictions and intermediation in international trade in a general equilibrium model. Heterogeneous firms both decide whether to export and, if so, whether to use an intermediary or export directly. Matching frictions force direct exporting firms to invest in market penetration to reach foreign consumers, but intermediated firms face lower consumer demand. This trade-off generates productivity sorting in the export mode, where the most productive firms export directly, the least productive do not export and the moderately productive firms use an intermediary. The interaction of search frictions and intermediation can explain several well-established empirical regularities of trade networks. The main contribution consists of novel predictions on the response of intermediaries to trade liberalization: I show that intermediaries increase the number of products they export but reduce the product scope. Finally, I find evidence for this nontrivial pattern using World Bank firm-level survey data.