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Firm survival, performance, and the exchange rate

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  • Jen Baggs
  • Eugene Beaulieu
  • Loretta Fung

Abstract

Abstract This paper examines the impact of exchange rate movements on firm survival and sales. We exploit detailed Canadian firm‐level data from 1986 to 1997, a period in which the Canadian dollar appreciated approximately 30% in the first six years and depreciated 30% in the later six years. We find that survival and sales are negatively associated with appreciations in the Canadian dollar. The impact on survival is less pronounced for more productive firms. The magnitude of the impact of exchange rate changes on firm survival and sales was comparable to the effect of CUSFTA‐mandated tariff changes. Ce texte étudie l'impact des mouvements dans le taux de change sur les ventes et la survie des entreprises. On exploite une base de données détaillées au niveau de l'entreprise pour la période 1986–1997 – une période durant laquelle le dollar s'est apprécié d'à peu près 30% au cours des premiers six ans, et s'est déprécié de 30% au cours des six dernières années. Il appert que survie et ventes sont négativement co‐reliées quand le dollar s'apprécie. L'impact sur la survie est moins prononcé pour les entreprises plus productives. La magnitude de l'impact des mouvements dans le taux de change sur la survie et les ventes des entreprises a été comparable à l'effet des changements de tarifs commandés par l'Accord de libre‐échange Canada‐US.

Suggested Citation

  • Jen Baggs & Eugene Beaulieu & Loretta Fung, 2009. "Firm survival, performance, and the exchange rate," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 393-421, May.
  • Handle: RePEc:wly:canjec:v:42:y:2009:i:2:p:393-421
    DOI: 10.1111/j.1540-5982.2009.01513.x
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    JEL classification:

    • F1 - International Economics - - Trade

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