Why do firms import via merchants in entrepôt countries rather than directly from the source?

Abstract

AbstractUsing Norwegian import‐transactions data, this article studies which factors are associated with the probability of importing indirectly via third countries (entrepôts), rather than directly from the source. Source country characteristics—especially high trade barriers and unfavorable geographical locations—are important when time‐invariant unobserved heterogeneity is not controlled for. When controlling for this, however, firm‐ and product‐level characteristics stand out as the main drivers. Smaller and less productive firms more often import via entrepôts, especially when importing product‐source combinations that are relatively unimportant in their total imports and when importing products with low price dispersion and high value‐to‐weight ratios.