Trading Through Times of Disintegration: How Services Help Firms Weather Shocks

Does exporting both goods and services help firms weather disintegration shocks? Using novel linked German microdata on firms’ goods and services exports, we examine how exporters adjusted to the Brexit referendum. Firms exporting only goods or only services reduced their UK sales. Dual exporters, which sell both, proved more resilient: their goods exports fell more, reflecting deeper price cuts, but their exports of complementary services rose. On net, their total UK exports show no statistically detectable decline, and – unlike single-mode exporters – they are no less likely to serve the UK market after the referendum. To rationalize these findings, we develop a model of one-way complementarity, in which services raise demand for the firm’s goods. Because complementary services are priced where demand is inelastic, their sales can rise as goods sales fall, giving dual exporters an additional margin of adjustment.