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Manufacturing restructuring and the role of Real exchange rate shocks: A firm level analysis

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  • Ekholm, Karolina
  • Moxnes, Andreas
  • Ulltveit-Moe, Karen-Helene

Abstract

Empirical analyses of the impact of real exchange rate (RER) fluctuations on employment and economic performance do not take heterogeneity with respect to trade exposure into account. In this paper we use detailed Norwegian firm-level data on exports and imports to calculate firm-specific measures of trade exposure. This allows us to provide a more accurate assessment of the adjustment to real exchange rate shocks. We treat the sharp real appreciation of the Norwegian Krone in the early 2000s as a natural experiment to identify firms' response to an RER shock with respect to employment, productivity, and offshoring. We find that the relative cost shock that hit the Norwegian economy led to a significant decline in the more exposed firms' employment. But the RER shock also appears to have contributed to a process of manufacturing restructuring that boosted productivity of firms exposed to foreign markets. A sizable increase in offshoring can also be attributed to the RER shock.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6904.

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Date of creation: Jul 2008
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Handle: RePEc:cpr:ceprdp:6904

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Keywords: Employment; Productivity; Real Exchange Rates; Trade;

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References

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Citations

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Cited by:
  1. Thierry Mayer & Philippe Martin & Nicolas Berman, 2010. "How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications," 2010 Meeting Papers 1338, Society for Economic Dynamics.
  2. Murphy, Gavin & Siedschlag, Iulia, 2012. "The Effect of Real Exchange Rate Changes on Labour Productivity Growth," Papers WP439, Economic and Social Research Institute (ESRI).
  3. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," GEMF Working Papers 2009-05, GEMF - Faculdade de Economia, Universidade de Coimbra.
  4. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Employment and Exchange rates: the Role of Openness and Technology," GEE Papers 0015, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised May 2009.
  5. Nicolas Berman & Antoine Berthou & Jérôme Héricourt, 2011. "Export Dynamics and Sales at Home," Working Papers 2011-33, CEPII research center.
  6. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2010. "Employment, Exchange Rates and Labour Market Rigidity," IZA Discussion Papers 4891, Institute for the Study of Labor (IZA).
  7. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2010. "Manufacturing Employment and Exchange Rates in the Portuguese Economy: The Role of Openness, Technology and Labour Market Rigidity," IZA Discussion Papers 5251, Institute for the Study of Labor (IZA).

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