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Are Service Firms Affected By Exchange Rate Movements?

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  • Jen Baggs
  • Eugene Beaulieu
  • Loretta Fung

Abstract

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.

Suggested Citation

  • Jen Baggs & Eugene Beaulieu & Loretta Fung, 2010. "Are Service Firms Affected By Exchange Rate Movements?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 156-176, June.
  • Handle: RePEc:bla:revinw:v:56:y:2010:i:s1:p:s156-s176
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    References listed on IDEAS

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    1. D.S. Prasada Rao, 2004. "The Country-Product-Dummy Method: A Stochastic Approach to the Computation of Purchasing Power Parities in the ICP," CEPA Working Papers Series WP032004, School of Economics, University of Queensland, Australia.
    2. D. S. Prasada Rao, 2005. "On The Equivalence Of Weighted Country-Product-Dummy (Cpd) Method And The Rao-System For Multilateral Price Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, pages 571-580.
    3. Erwin Diewert, 2005. "Weighted Country Product Dummy Variable Regressions And Index Number Formulae," Review of Income and Wealth, International Association for Research in Income and Wealth, pages 561-570.
    4. Cameron,A. Colin & Trivedi,Pravin K., 2008. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9787111235767, December.
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    Cited by:

    1. Leandro Medina, 2012. "Spring Forward or Fall Back? The Post-Crisis Recovery of Firms," IMF Working Papers 12/292, International Monetary Fund.
    2. Jen Baggs & Loretta Fung & Beverly Lapham, 2015. "Exchange Rates, Cross-Border Travel, and Retailers: Theory and Empirics," Working Papers 1351, Queen's University, Department of Economics.
    3. Toraganlı, Nazlı & Yazgan, M. Ege, 2016. "Exchange rates and firm survival: An examination with Turkish firm-level data," Economic Systems, Elsevier, vol. 40(3), pages 433-443.

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