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Export intermediaries and adjustments to exchange rate movements

Stefano Bolatto, Marco Grazzi () and Chiara Tomasi ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Building on a heterogeneous-firm model à la Melitz (2003), we propose a theory of intermediaries in international trade which rationalizes the available evidence on both aggregate and firm-level exports as well as their responsiveness to exchange rate movements. We introduce double marginalization for goods traded indirectly, i.e. through intermediaries, and local distribution costs for all exporting firms, either intermediaries or direct exporters. This leads to heterogeneous markups, pricing-to-market and to a lower degree of exchange rate pass-through for goods exported by intermediaries. This result, validated on Italian firm-level trade data, is consistent with productivity sorting in the export mode and with the propensity of high productivity firms to absorb more exchange rate movements in their markups. We also explore how direct and intermediary export ows to a given destination react to exchange rate movements along the extensive margin of adjustment. Consistently with our theory, we find evidence of a larger variation in the overall number of varieties traded along the intermediary channel.

JEL-codes: F12 F14 D22 L22 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-int
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