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Exchange rate fluctuations, plant turnover and productivity

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  • Tomlin, Ben

Abstract

In a small open economy, fluctuations in the real exchange rate can affect plant turnover, and thus aggregate productivity, by altering the makeup of plants that populate the market. This paper develops a structural model that captures the effect of plant-level productivity and real exchange rate fluctuations on plant entry and exit decisions, and how this, in turn, affects average industry productivity. Using plant-level data for a single industry, the model's dynamic parameters are estimated in two-stages using the Nested-Pseudo Likelihood algorithm and the Method of Simulated Moments. Simulations of the model are used to investigate the effects of shocks to the exchange rate process on productivity. The results suggest that, given the mechanisms highlighted in the model, transitory and permanent depreciations have similar long-term effects on average industry productivity.

Suggested Citation

  • Tomlin, Ben, 2014. "Exchange rate fluctuations, plant turnover and productivity," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 12-28.
  • Handle: RePEc:eee:indorg:v:35:y:2014:i:c:p:12-28 DOI: 10.1016/j.ijindorg.2014.05.002
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    Cited by:

    1. Kancs, d’Artis & Siliverstovs, Boriss, 2016. "R&D and non-linear productivity growth," Research Policy, Elsevier, pages 634-646.
    2. Vivek Farias & Bar Ifrach & Gabriel Weintraub, 2012. "A Framework for Dynamic Oligopoly in Concentrated Industries," 2012 Meeting Papers 505, Society for Economic Dynamics.
    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.
    4. Nazli Karamollaoglu & M. Ege Yazgan, 2014. "Firm Exit and Exchange Rates: An Examination with Turkish Firm-Level Data," Koç University-TUSIAD Economic Research Forum Working Papers 1411, Koc University-TUSIAD Economic Research Forum.
    5. Aguirregabiria, Victor, 2009. "Estimation of Dynamic Discrete Games Using the Nested Pseudo Likelihood Algorithm: Code and Application," MPRA Paper 17329, University Library of Munich, Germany.
    6. Salamat Ali, 2017. "Exchange Rate Effects on Agricultural Exports: Firm-level Evidence from Pakistan," Discussion Papers 2017-09, University of Nottingham, GEP.
    7. Ferguson, Shon & Sanctuary, Mark, 2014. "Firm Productivity and Carbon Leakage: A Study of Swedish Manufacturing Firms," Working Paper Series 1035, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Productivity; Exchange rates; Structural estimation; Dynamics; Micro data;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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