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Multi-destination firms and the impact of exchange-rate risk on trade

Author

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  • Héricourt, Jérôme
  • Nedoncelle, Clément

Abstract

Based on a French firm-level database that combines information on balance-sheet and destination-specific export information over the period 1995–2009, we document a new stylized fact related to the heterogeneous reaction of exporters to RER volatility: we show that strongly multi-destination firms tend to reduce significantly more their exports to a destination that faces higher exchange-rate volatility. We also show that, following an exchange-rate volatility shock in a given country, strongly multi-destination firms increase exports to all other destinations served. This specific behavior of multi-destination firms has significant aggregate implications. First, the bilateral aggregate impact is increasingly negative with the weight of multi-destination firms in total exports towards the considered destination. Second, the reallocation behavior of large, multi-destination firms ultimately translates into stable total French exports (summed over all destinations).

Suggested Citation

  • Héricourt, Jérôme & Nedoncelle, Clément, 2018. "Multi-destination firms and the impact of exchange-rate risk on trade," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1178-1193.
  • Handle: RePEc:eee:jcecon:v:46:y:2018:i:4:p:1178-1193
    DOI: 10.1016/j.jce.2018.07.016
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    More about this item

    Keywords

    Real exchange-rate volatility; Multi-destination exporters; Reallocation; Aggregation;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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