What Explains Indirect Exports of Goods and Services in Eastern Europe and Central Asia?

Mardi | 2016-06-07


This paper investigates the determinants of indirect exporting using firm-level data for 27 countries in Eastern Europe and Central Asia. Indirect exporting depends on a combination of fixed and variable trade cost factors. We hypothesize that firms that perceive transportation, crime, legal systems and corruption as severe obstacles face higher fixed costs and are more likely to export indirectly and that indirect exporting tends to be a temporary strategy. Econometric models are used to test the first hypothesis and transition matrices to test the second hypothesis. In particular, probit and fractional response models are estimated to analyse the determinants of the export mode and theshare of indirect exports. The results indicate that the above-mentioned factors that account for the fixed cost of exporting, not only affect the decision of whether to export indirectly, but also to a lower extent the amount exported indirectly, whereas factors such as the size of the firm and the ownership structure affect both, and country-factors such as trade agreement membership and exchange rate volatility mainly determine the share of indirect exports of goods the former and of services the latter. The results also indicate that the status of indirect exporter is more likely to be abandoned than the status of being a direct exporter or a non-exporter, confirming the second hypothesis.