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Bolatto, Stefano
Grazzi, Marco
Tomasi, Chiara
Year of Publication: 
Series/Report no.: 
Quaderni - Working Paper DSE No. 2004
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 dis- tribution 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 flows 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.
international trade
firms heterogeneity
export entry costs
local distribution costs
heterogeneous markups
product adding and dropping
exchange rate pass-through
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Working Paper

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