Exchange Rate Volatility and Firms’ Export Decisions: Evidence from Exporter Dynamics Database

In this paper, we study the effects of bilateral exchange rate volatility on the extensive margin of export. More specifically, we explore the effect of bilateral exchange rate volatility on the number of exporters, new entrants to the export market, and exiters from the market using destination and sector-specific export data of 28 developing countries from 1997 to 2014 provided by the Exporter Dynamics Database of the World Bank. The estimation results show that bilateral exchange rate volatility generates a depressing effect on the extensive margin of export. However, the effect is more significant for the entrants and minor for the exiters. Looking at the asymmetric effects with respect to currency depreciations versus appreciations, we find that more significant depreciations of currencies over longer horizons intensify the depressing effect of the volatility on the extensive margin. When we disentangle the destination countries as advanced and developing countries, we find that volatility displays a more significant asymmetric effect in the sample of developing destination countries.