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Debt denomination, exchange-rate variations and the margins of trade

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  • Nicolas Berman
  • Jerome Hericourt

Abstract

Using firm-level data, we find that a currency depreciation has two opposite effects on exports when firms are indebted in foreign currency: (i) a pro-competitive effect that increases both the amount of exports by firm (the intensive margin) and the number of firms (the extensive margin); and (ii) a balance-sheet effect that forces some firms to exit the export market and decreases the extensive margin. These results both provide an explanation for the negative reactions of trade after recent emerging market crises and document a finance-based empirical microfoundation to the 'exchange-rate disconnect puzzle'.

Suggested Citation

  • Nicolas Berman & Jerome Hericourt, 2011. "Debt denomination, exchange-rate variations and the margins of trade," Applied Economics Letters, Taylor & Francis Journals, vol. 18(9), pages 817-822.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:9:p:817-822
    DOI: 10.1080/13504851.2010.510462
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    References listed on IDEAS

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    1. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
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    4. Aguiar, Mark, 2005. "Investment, devaluation, and foreign currency exposure: The case of Mexico," Journal of Development Economics, Elsevier, vol. 78(1), pages 95-113, October.
    5. Froot, Kenneth A., 1989. "Consistent Covariance Matrix Estimation with Cross-Sectional Dependence and Heteroskedasticity in Financial Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 333-355, September.
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    Cited by:

    1. Lee, Kwan Yong & Naknoi, Kanda, 2024. "Exchange rates, invoicing currencies and the margins of exports," Journal of International Money and Finance, Elsevier, vol. 141(C).
    2. Ameyaw, Abdul-Kadir & Panibratov, Andrei & Ameyaw, Ahmed Sadat, 2023. "Foreign divestment from emerging markets: A systematic literature review, integrative framework, and research agenda," European Management Journal, Elsevier, vol. 41(6), pages 1134-1152.
    3. Nazlı Karamollaoğlu & Cihan Yalçin, 2020. "Exports, real exchange rates and dollarization: empirical evidence from Turkish manufacturing firms," Empirical Economics, Springer, vol. 59(5), pages 2527-2557, November.

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