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Exports and exchange rate : a firm-level investigation

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This paper investigates the relation between export behaviour and the exchange rate at firm level. We use a dataset of French manufacturing firms from 1994 to 2004, to study the sensitivity of firms' export intensity and probability of entering a foreign market, to the exchange rate. This large dataset allows us to differentiate among 21 manufacturing industries. We show that for most industries, the exchange rate has an influence on export entry, but that the effect of changes in the exchange rate on export intensity is fairly neutral. The probability of entering an export market is increased by depreciation. This supports the presence of export sunk costs, which are more easily incurred by firms in periods of exchange rate depreciation. We conclude that currency appreciation is a cause for concern because it increases import penetration implying higher levels of foreign competition for domestic firms.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2008-02.

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Date of creation: 2008
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Handle: RePEc:fce:doctra:0802

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  1. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  2. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
  3. Daria Taglioni, 2002. "Exchange Rate Volatility as a Barrier to Trade: New Methodologies and Recent Evidence," Economie Internationale, CEPII research center, issue 89-90, pages 227-259.
  4. 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.
  5. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  6. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  7. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  8. Cheong, Chongcheul & Mehari, Tesfa & Williams, Leighton Vaughan, 2005. "The effects of exchange rate volatility on price competitiveness and trade volumes in the UK: A disaggregated approach," Journal of Policy Modeling, Elsevier, vol. 27(8), pages 961-970, November.
  9. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  10. Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
  11. Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
  12. Baldwin, Richard, 1990. "Hysteresis in Trade," Empirical Economics, Springer, vol. 15(2), pages 127-42.
  13. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
  14. Silvana Tenreyro, 2003. "On the trade impact of nominal exchange rate volatility," Working Papers 03-2, Federal Reserve Bank of Boston.
  15. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  16. Giovanni Dell'Ariccia, 1998. "Exchange Rate Fluctuations and Trade Flows," IMF Working Papers 98/107, International Monetary Fund.
  17. Agathe Cote, 1994. "Exchange Rate Volatility and Trade," International Trade 9406001, EconWPA, revised 23 Jun 1994.
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Cited by:
  1. Roberto Álvarez & Ricardo A. López, 2009. "Skill Upgrading and the Real Exchange Rate," Working Papers Central Bank of Chile 519, Central Bank of Chile.
  2. Georg H. Strasser, 2011. "Exchange Rate Pass-Through and Credit Constraints: Firms Price to Market as Long as They Can," Boston College Working Papers in Economics 788, Boston College Department of Economics, revised 13 Feb 2012.
  3. Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.

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