Discussion Paper

No. 2016-19 | May 11, 2016
The Lumpiness of German Exports and Imports of Goods

Abstract

This paper looks at a hitherto neglected extensive margin of international trade by investigating for the first time the frequency at which German exporters and importers trade a given good with a given country. Imports and exports show a high degree of lumpiness. In a given year about half of all firm-good-country combinations are recorded only once or twice for trade with EU countries, and this is the case for more than 60 percent of all firm-good-country combinations in trade with non-EU countries. The frequency of recorded transactions tends to decline with an increase in the number of transactions per year. This is in accordance with the presence of per-shipment fixed costs that provide an incentive for trading firms to engage in cross-border transactions infrequently. Empirical models show that for Germany the frequency of transactions at the firm-good-country level tends to decrease with an increase in per-shipment costs when unobserved firm and goods characteristics are controlled for.

JEL Classification:

F14

Assessment

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Links

Cite As

Joachim Wagner (2016). The Lumpiness of German Exports and Imports of Goods. Economics Discussion Papers, No 2016-19, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2016-19


Comments and Questions


Anonymous - Referee Report 1
June 24, 2016 - 08:38

The paper documents the lumpiness of export and import flows through the length of an additional infra-annual margin of trade, the number of transactions per year. The empirical analysis makes use of original detailed trade data at the firm level for Germany to provide detailed descriptive statistics on the number ...[more]

... of shipment per year and its determinants.
While the paper reproduces a number of interesting evidence on the number of shipment along various dimensions using a new dataset of German exporting and importing firms not used before, it falls short of providing a framework allowing understanding the determinants of this transaction margin. The paper indeed relates the number of transactions per year to usual gravity determinants of trade flows, but does not explains much how to interpret them in the specific context of what the paper refer to as a new margin of trade. Other papers on the same topic provide a theoretical framework to think about such transaction margin, in terms of fixed costs of shipment, inventory management or customers' need for timeliness, thus allowing to interpret trade cost variables as determinants of the number of shipment. The paper would therefore gain at explaining in details how to interpret the number of transactions per exporter/importer per year in light of the existing theory put forward in the literature and to link the empirical exercise more clearly to those determinants in order to be able to interpret them.


Joachim Wagner - Reply to Referee Report 1
August 02, 2016 - 10:16

Joachim Wagner – Answer to Referee Report 1
August 2, 2016

The referee states that “ (w)hile the paper reproduces a number of interesting evidence on the number of shipment along various dimensions using a new dataset of German exporting and importing firms not used before, it falls ...[more]

... short of providing a framework allowing understanding the determinants of this transaction margin. The paper indeed relates the number of transactions per year to usual gravity determinants of trade flows, but does not explain much how to interpret them in the specific context of what the paper refer to as a new margin of trade.”

I disagree. Following Hornok and Koren (2015a) the empirical model for the determinants of the lumpiness of trade include variables for the usual gravity determinants of trade flows as control variables only besides the variables that measure per-shipment fixed costs of trade. These fixed trade costs are at the core of the empirical analysis (see section 4 of the paper) and their relevance is used to motivate the paper in section 1.

The referee suggests that “(t)he paper would therefore gain at explaining in details how to interpret the number of transactions per exporter/importer per year in light of the existing theory put forward in the literature and to link the empirical exercise more clearly to those determinants in order to be able to interpret them.” Although this is done already in sections 4.2 (for imports) and 4.3 (for exports) and in the conclusions I will elaborate on this in a revised version.


Anonymous - Referee Report 2
June 27, 2016 - 08:34

The paper "Lumpiness of German Exports and Imports of Goods" aims to contribute to a recent literature on shipment frequency (Alessandria et al. 2010, Kropf and Saure, 2014; Hornok and Koren 2015, Bekes et al., 2015). The aim of the paper is to replicate some results of this literature on ...[more]

... Germany.
The paper, given its length, is poorly motivated. Why shall we care about differences of trade frequency between French and German firms, unless there was a smoking gun of evidence?
The central topic is what the author calls "lumpiness". I think this expression may be changed especially if the concentration of some shipments is related to one-off/very small shipments (T1)
The most important problem with this paper is the lack of focus. It talks about both imports and exports without much explanation on what we should expect in terms of similarities and differences. It offers a great amount descriptive statistics (Table 2-Table 7) but we see no discussion of similarities/differences with respect to papers mentioned earlier (with the exception of sentence in conclusions).
I think there are three potential avenues of improving the study.
A. It may focus on differences of export and import of the same good/firm to/from the same country. This may help us learn about the structure of per shipment fixed costs.
B. Focus on the reason why some products are exported/imported only once (p9). Is this because these products are infrequently traded, maybe just once? Or are these instances somehow correlated with higher per shipment costs?
C. Focus on comparisons with existing literature looking for issues that would generate different results for Germany.
In any cases, the paper should be cut to a smaller version – especially so if the author would focus on option C.
A minor suggestion for comparisons of model with and without firm-product fixed effects is to run regression without FE on the same sample as the one with FE. Stata fails to report, but all single firm-HS6 instances will be dropped, greatly reducing the actual sample these regressions are run. Given that the dataset has 2m observations and 1.4m FE, this may be a serious issue.


Joachim Wagner - Reply to Referee Report 2
August 02, 2016 - 10:17

Joachim Wagner – Answer to Referee Report 2
August 2, 2016

The referee argues that „(t)he paper, given its length, is poorly motivated. Why shall we care about differences of trade frequency between French and German firms, unless there was a smoking gun of evidence?” In my view, ...[more]

... the fact that the issue of lumpiness of trade has not been studied for Germany, the number three on the world market for both exports and imports of goods, before is a good motivation to do so. We are interested in stylized facts (not least to inform policy makers, and theoretical studies) and we urgently need empirical studies that provide sound evidence from a number of countries based on different data sets for this reason.

The referee states that “(t)he most important problem with this paper is the lack of focus. It talks about both imports and exports without much explanation on what we should expect in terms of similarities and differences. It offers a great amount descriptive statistics (Table 2-Table 7) but we see no discussion of similarities/differences with respect to papers mentioned earlier (with the exception of sentence in conclusions).” In my view, a broad and comprehensive descriptive analysis is a necessary starting point when a new topic is analyzed empirically for a country for the first time.

I agree that a comprehensive discussion of similarities and differences with respect to findings in the earlier papers from the literature on lumpiness of trade is missing. However, given that the data used in these papers often differ considerably from the data I use any comparison of results is sometimes tricky. In a revised version I will, however, elaborate on this issue. This is in accordance with “Option C” suggested by the referee to improve the paper.

I thank the referee for suggesting “to run regression without FE on the same sample as the one with FE” to take care of the role of singletons. I will do so when I prepare a revised version.