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Are Service Firms Affected By Exchange Rate Movements?

  • Jen Baggs
  • Eugene Beaulieu
  • Loretta Fung

There is a growing literature addressing the effects of exchange rate movements on manufacturing firms, but almost no analysis concerning firms in the service sector. We analyze the effects of industry specific real exchange rate movements on the profitability, survival, and sales of Canadian service sector firms. Using rich firm-level data and service trade data, our empirical results show that real appreciations of the Canadian dollar reduce firm probability of survival, sales, and profitability while depreciations have the opposite effect. Overall, our findings suggest a significant exchange rate effect on service firms that is qualitatively similar to that found for manufacturing firms. However, the magnitude of the exchange rate effects is quite different for manufacturing and service firms. The impact of the exchange rate on profits is larger for manufacturing firms; the impact on survival is larger among service sector firms; and the impact on sales is of similar magnitude. Copyright 2010 The Authors. Journal compilation 2010 International Association for Research in Income and Wealth.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 56 (2010)
Issue (Month): s1 (06)
Pages: S156-S176

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Handle: RePEc:bla:revinw:v:56:y:2010:i:s1:p:s156-s176
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