Exchange rates and trade: How important is hysteresis in trade?
AbstractThis 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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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/427.
Length: 26 pages
Date of creation: 12 Oct 2000
Date of revision:
Responsiveness; export supply;
Other versions of this item:
- Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
- Campa, José Manuel, 2000. "Exchange Rates and Trade: How Important is Hysteresis in Trade?," CEPR Discussion Papers 2606, C.E.P.R. Discussion Papers.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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