Export Modes and Adjustments to Exchange Rate Movements

This paper offers micro-economic foundations for the different impact that exchange rate movements exert on direct and intermediated exports. By featuring double marginalization and heterogeneous pricing-to-market, the model predicts that the exchange rate elasticity of export prices can be larger for goods traded indirectly. The theory suggests that the adjustment in the relative number of varieties traded indirectly is larger, the higher the level of country fixed costs. Using Italian firm-level data with destination-and-product information on export values and volumes, we provide evidence consistent with our theory. Overall, the results suggest that wholesalers have a key role in stabilizing trade.