Customs brokers as intermediaries in international trade

Hege Medin

doi:10.1007/s10290-020-00396-w

Abstract

Recent studies suggest that intermediaries like merchants facilitate international trade by reducing fixed trade costs for producers that trade through them instead of exporting or importing directly. This study argues that customs brokers–a type of intermediary rarely studied in economics before–play a similar role by reducing fixed costs of clearing goods through customs for firms that use them instead of self-declaring. Using panel data of Norwegian trade transactions, the paper shows that the majority of manufacturing producers participating in international trade use such brokers, and that the brokers typically handle large trade values on behalf of several different produces. In an econometric analysis, the author finds that the share of a producer’s market specific trade that is self-declared rather than handled by brokers increases with the traded value. This is in line with predictions from theoretical models on trade intermediaries and holds after controlling for observed as well as unobserved factors at the producer, country and product level. Results are similar for exporting and importing, indicating that brokers facilitate both modes of trade.

Highlights

A recent strand in economic research concerns how intermediaries like merchants facilitate international trade by making it possible for firms unable to handle all trade-related issues by themselves to participate in international markets
Customs brokers have rarely been studied in economics before, and this is the first article to document the use of such brokers in a whole population or even representative sample of firms
The tendency of larger trade values being self-declared and smaller ones being handled by brokers found in Sect. 4.2.1 holds when controlling for observed and unobserved factors at the producer, country and product level. This indicates that the model of intermediation is relevant in the context of merchant-intermediaries, and in the context of broker-intermediaries

Summary

Introduction

A recent strand in economic research concerns how intermediaries like merchants facilitate international trade by making it possible for firms unable to handle all trade-related issues by themselves to participate in international markets. The model predicts that larger and more productive producers exporting sizeable values to more profitable markets with lower trade costs are less likely to use intermediaries. I first use highly disaggregated data–at the declaration level, to show that there is a positive correlation between the probability of a producer self-declaring a single declaration and its trade value This is consistent with producers avoiding fixed customs clearing costs by hiring brokers when they trade small values. Apart from that, only producer level features affect intermediary-use This contrasts studies of merchant-intermediaries, especially those using the intermediary approach, which generally found that country- and product characteristics affected the tendency to trade directly. This underlines the importance of controlling for all these features at the same time.

Concepts

Data and descriptives

Econometric analyses

Declaration level

Producer‐country‐product‐year level

Concluding remarks