The Exchange Rate and Export Variety: A cross-country analysis with long panel estimators

This paper studies how the number of product categories exported by countries is related to the level and the volatility of the exchange rate. In contrast with previous works studying bilateral export variety between countries, this paper looks at aggregate, country-level export variety. I find that export variety is positively related to a weaker exchange rate and negatively related to exchange rate volatility. These relationships seem to be stronger for goods with higher technological intensity. Using disaggregated trade data for a long panel of countries, this paper investigates these relationships by employing an econometric methodology that allows for heterogeneous coefficients across countries and discusses two sources of bias that are often overlooked. The findings suggest that previous studies might be understating the effect of the level of the exchange rate on export variety. The results are robust to using different samples, datasets, variable definitions and estimators (including more traditional fixed effects and dynamic GMM estimators).