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Export intermediaries and adjustments to exchange rate movements

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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.

Suggested Citation

  • S. Bolatto & M. Grazzi & C. Tomasi, 2017. "Export intermediaries and adjustments to exchange rate movements," Working Papers wp2004, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp2004
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    1. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
    2. Andrew B. Bernard & Marco Grazzi & Chiara Tomasi, 2010. "Intermediaries in International Trade: direct versus indirect modes of export," LEM Papers Series 2010/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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