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The impact of real exchange rate movements on firm performance: A case study of Taiwanese manufacturing firms

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  • Fung, Loretta
  • Liu, Jin-Tan

Abstract

Taiwan experienced large depreciations of its currency, the New Taiwan (NT) dollar, in the late 1990s. The largest real depreciation, 13 per cent, occurred during the East Asian Financial Crisis. Since Taiwan was subjected neither to the economic turmoil of the crisis itself nor to the subsequent reforms, its experience provides a good opportunity for studying the effects of exchange rate changes on firm performance. This paper empirically examines the exchange rate effects on firm exports, domestic sales, total sales, value-added and productivity, by using data on firms listed on the Taiwan Stock Exchange merged with customs trade data covering the period of 1992-2000. Our findings indicate that the real depreciation of the NT dollar led to an increase in exports, domestic sales, total sales, value-added, and productivity. In addition, we find that the productivity improvement induced by real currency depreciation may be a result of firm scale expansion.

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  • Fung, Loretta & Liu, Jin-Tan, 2009. "The impact of real exchange rate movements on firm performance: A case study of Taiwanese manufacturing firms," Japan and the World Economy, Elsevier, vol. 21(1), pages 85-96, January.
    • Handle: RePEc:eee:japwor:v:21:y:2009:i:1:p:85-96
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    7. Mohammad Reza Lotfalipour & Maliheh Ashena & Maryam Zabihi, 2013. "Exchange Rate Impacts on Investment of Manufacturing Sectors in Iran," Business and Economic Research, Macrothink Institute, vol. 3(2), pages 12-22, December.
    8. Ekholm, Karolina & Moxnes, Andreas & Ulltveit-Moe, Karen Helene, 2012. "Manufacturing restructuring and the role of real exchange rate shocks," Journal of International Economics, Elsevier, vol. 86(1), pages 101-117.
    9. Ulltveit-Moe, Karen Helene & Moxnes, Andreas, 2010. "Product adjustments: A firm-level analysis of the impact of a real exchange rate shock," CEPR Discussion Papers 7923, C.E.P.R. Discussion Papers.
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