Wholesalers and Retailers in U . S . Trade ( Long

We combine data on individual trade transactions from U.S. customs records with comprehensive information on firms' employment from the Census Bureau's business register to examine wholesalers and retailers in U.S. exports and imports. Exporters and importers with 100 percent employment in wholesale and retail differ from pure "producer and consumer" trading firms along a number of dimensions: they are smaller in terms of employment, trade value and domestic sales, operate fewer U.S. establishments and are present in fewer U.S. states. "Mixed" firms, i.e., those with both production/consumption and wholesale retail within the boundaries of the firm, on the other hand, are substantially larger. They trade more products, trade with more countries, and are more likely to engage in related-party trade. Andrew B. Bernard Tuck School of Business at Dartmouth 100 Tuck Hall Hanover, NH 03755 and NBER [email protected] J. Bradford Jensen McDonough School of Business Georgetown University Washington, DC 20057 and NBER [email protected] Stephen J. Redding Yale School of Management 135 Prospect Street New Haven, CT 06520-8200 and London School of Economics and CEPR [email protected] Peter K. Schott Yale School of Management 135 Prospect Street New Haven, CT 06520-8200 and NBER [email protected] Wholesalers and Retailers in U.S. Trade (Long Version) By ANDREW B. BERNARD, J. BRADFORD JENSEN, STEPHEN J. REDDING AND PETER K. SCHOTT International trade models typically assume that producers in one country trade directly with final consumers in another. In the real world, of course, trade can involve long chains of potentially independent actors who move goods through wholesale and retail distribution networks. These networks likely affect the magnitude and nature of trade frictions and hence both the pattern of trade and its welfare gains. To promote further understanding of the means by which goods move across borders, this paper examines the extent to which U.S. exports and imports flow through wholesalers and retailers versus “producing and consuming” firms. We highlight a number of stylized facts about these intermediaries, and show that their attributes can deviate substantially from the portrait of trading firms that has emerged from microdata in recent years. We combine data on individual trade transactions from U.S. customs records with comprehensive information on firms’ employment from the Census Bureau’s business register. We define “pure” wholesalers  Bernard: Tuck School of Business at Dartmouth and NBER, 100 Tuck Hall, Hanover, NH 03755 (email: [email protected]); Jensen: Georgetown University and NBER, 521 Hariri, McDonough School of Business, Washington, D.C. 20057 (email: [email protected]); Redding: London School of Economics and CEPR, Houghton Street, London. WC2A 2AE UK (email: [email protected]); Schott: Yale School of Management & NBER, 135 Prospect Street, New Haven, CT 06520 (email: [email protected]). Schott (SES0550190) thanks the NSF and Redding thanks the ESRCfunded Centre for Economic Performance for financial support. The research in this paper was conducted at the U.S. Census Research Data Centers, and support from NSF (ITR0427889) is acknowledged gratefully. We thank Daniel Reyes for reserach assistance and Jim Davis for speedy disclosure. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the NSF or the U.S. Census Bureau. Results have been reviewed to ensure that no confidential information is disclosed. and retailers to be importers or exporters with 100 percent of their U.S. employment in either of those two sectors. These firms account for large shares of exporters and importers but relatively little export and import value. We define “pure” producing and consuming firms to be those with zero employment in wholesaling and retailing. These firms – arguably the closest analog to the hypothetical “trading firm” in much of the heterogeneous-firm literature in international trade – account for relatively large shares of firms but moderate amounts of value. The remaining “mixed” firms are the rarest but by far the largest in terms of value. Distinguishing between “mixed” firms that have more and less than three quarters of their employment in wholesaling plus retailing, we find the latter dominate. Pure wholesalers and retailers differ from pure producer and consumer firms along a number of dimensions: they are smaller in terms of employment, trade value and domestic sales, operate fewer U.S. establishments and are present in fewer U.S. states. “Mixed” firms, on the other hand, are substantially larger. They trade more products, trade with more countries, and are more likely to engage in relatedparty trade. Intermediaries’ existence indicates that they overcome barriers to international trade at lower cost than at least some producer and consumer firms. As a result, we examine whether the scope and intensity of wholesale and retail trade varies with product and country characteristics related to these costs as well as foreign demand.1 We find participation in productcountry markets to be well below one hundred percent for all types of firms, and especially low for pure retailers and mixed-wholesaler-retailers. This variation 1For theoretical explanations of intermediation see James E. Rauch and Joel Watson (2004), Bernardo Blum, Sebastian Claro and Ig Horstmann (2008), Anders Akerman (2009), JaeBin Ahn, Amit Khandelwal and Shang-Jin Wei (2009), Pol Antràs and Arnaud Costinot (2009) and Dimitra Petropoulou (2007).