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Export Modes and Adjustments to Exchange Rate Movements

Author

Listed:
  • Stefano Bolatto

    ()

  • Marco Grazzi

    ()

  • Chiara Tomasi

    ()

Abstract

This work investigates the di↵erential adjustments of the direct and intermediated export chan- nels in the aftermath of an exchange rate movement. We do this with the help of a relatively parsimonious model that, while replicating the main findings from the literature on export in- termediaries, also puts forth new testable predictions. Exporting through intermediaries entails lower fixed costs, but as a consequence of double marginalization, it also entails lower variable profits. If firms apply heterogeneous pricing-to-market, the joint outcome at the very micro level is a lower exchange rate pass-through for goods traded via intermediaries, whereas at a more aggregate level, there is an adjustment in the number of varieties reaching the foreign destination over the two export channels that varies with the level of country fixed costs. These conjectures are tested employing the Italian cross-border transaction level data; taken together they shed light on the determinants of the impact of intermediaries on aggregate trade flows.

Suggested Citation

  • Stefano Bolatto & Marco Grazzi & Chiara Tomasi, 2018. "Export Modes and Adjustments to Exchange Rate Movements," DEM Working Papers 2018/02, Department of Economics and Management.
  • Handle: RePEc:trn:utwprg:2018/02
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    References listed on IDEAS

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    More about this item

    Keywords

    firms heterogeneity; export intermediaries; heterogeneous markups; pricing to market; double marginalization; exchange rate pass-through; export mode selection;

    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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