Export Modes and Adjustments to Exchange Rate Movements

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.