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Exchange rates and trade: How important is hysteresis in trade?

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Author Info
Campa, Jose M. () (IESE Business School)

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Abstract

This paper looks at the responsiveness of a country's export supply to exchange rate changes and measures its quantitative importance by breaking down export adjustments between changes in output levels by existing exporters (intensive margin) and movements due to changes in the number of exporters (extensive margin). Using data on a representative sample of Spanish manufacturing firms, the paper finds sunk costs hysteresis in entry and exit to be an important factor in determining export market participation, but unrelated to exchange rate uncertainty. The sunk costs of entering the market appear to be much larger than the costs of exiting the market. Finally, although hysteresis exists, its effect on the responsiveness of aggregate trade volumes to exchange rate changes is quantitatively small. A 10% home currency depreciation results in an increase in export volume due to the increase in the number of exporting firms of only 1.5% of export volume.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/427.

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Length: 26 pages
Date of creation: 12 Oct 2000
Date of revision:
Handle: RePEc:ebg:iesewp:d-0427

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research
Keywords: Responsiveness; export supply;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

References listed on IDEAS
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  2. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November. [Downloadable!] (restricted)
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  3. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February. [Downloadable!] (restricted)
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  4. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
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  5. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Roberts, Mark J. & Tybout, James R., 1995. "An empirical model of sunk costs and the decision to export," Policy Research Working Paper Series 1436, The World Bank. [Downloadable!]
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  7. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May. [Downloadable!] (restricted)
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  12. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May. [Downloadable!] (restricted)
  13. Bee Yan Aw & Xiaomin Chen & Mark J. Roberts, 1997. "Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing," NBER Working Papers 6235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters, in: Studies in Labor Markets, pages 91-140 National Bureau of Economic Research, Inc. [Downloadable!]
  15. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sule Ozler & Erol Taymaz & Kamil Yilmaz, 2007. "History Matters for the Export Decision Plant Level Evidence from Turkish Manufacturing Industry," ERC Working Papers 0704, ERC - Economic Research Center, Middle East Technical University, revised Mar 2007. [Downloadable!]
    Other versions:
  2. Zhang, Yin & Wan, Guanghua, 2004. "What Accounts for China's Trade Balance Dynamics?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  3. I. Agur, 2003. "Trade-volume hysteresis: an investigation using aggregate data," WO Research Memoranda (discontinued) 740, Netherlands Central Bank, Research Department. [Downloadable!]
  4. Swenson, Deborah, 2001. "Competition and the Location of Overseas Assembly," Working Papers 06-38, University of California at Davis, Department of Economics. [Downloadable!]
  5. Sarah Guillou, 2008. "Exports and exchange rate : a firm-level investigation," Documents de Travail de l'OFCE 2008-02, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  6. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 1998. "Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea," NBER Working Papers 6558, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Rubén Segura-Cayuela & Josep M. Vilarrubia, 2008. "Uncertainty and entry into export markets," Banco de España Working Papers 0811, Banco de España. [Downloadable!]
  8. Dionisius A. Narjoko & Raymond Atje, 2007. "The Effects of Agricultural Trade Liberalisation under the Doha Development Agenda with Special Reference to the Asia Pacific Region: A Brief Survey," Working Papers 3207, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
  9. José Vicente Blanes Cristóbal & Marion Dovis & Juliette Milgram Baleix & Ana I. Moro Egido, 2007. "Do sunk exporting costs differ among markets? Evidence from Spanish manufacturing firms," ThE Papers 07/02, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
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  10. Francisco Requena-Silvente, 2005. "The Decision to Enter and Exit Foreign Markets: Evidence from U.K. SMEs," Small Business Economics, Springer, vol. 25(3), pages 237-253, October. [Downloadable!] (restricted)
  11. Cassiman, Bruno & Golovko, Elena, 2007. "Innovation and the Export-productivity Link," CEPR Discussion Papers 6411, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Juliette Milgram & Marion Dovis, 2008. "Trade,Tariffs and Total Factor Productivity: The Case of Spanish Firms," Working Papers. Serie EC 2008-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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  13. Juan A. Máñez & María E. Rochina-Barrachina & Juan A. Sanchis, 2008. "Sunk Costs Hysteresis in Spanish Manufacturing Exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 272-294, July. [Downloadable!] (restricted)
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  14. Licandro, Omar & Maroto Illera, María Reyes & Puch, Luis, 2005. "Innovation, Machine Replacement and Productivity," CEPR Discussion Papers 5422, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market entry costs, producer heterogeneity and export dynamics," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 03-10, Indian Statistical Institute, New Delhi, India. [Downloadable!]
    Other versions:
  16. Spiros Bougheas & Paul Mizen & Cihan Yalcin, 2007. "An Open Economy Model of the Credit Channel Applied to Four Asian Economies," Working Papers 082007, Hong Kong Institute for Monetary Research. [Downloadable!]
  17. Flora Bellone & Patrick Musso & Lionel Nesta & Stefano Schiavo, 2008. "Financial constraints as a barrier to export participation," Documents de Travail de l'OFCE 2008-29, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  18. Augier, Patricia & Cadot, Olivier & Dovis, Marion, 2009. "Imports and TFP at the Firm Level: The Role of Absorptive Capacity," CEPR Discussion Papers 7218, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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