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Product adjustments: A firm-level analysis of the impact of a real exchange rate shock

  • Moxnes, Andreas
  • Ulltveit-Moe, Karen-Helene

Using a new and extensive micro data set we investigate the impact of a change in international competitive pressure following a real exchange shock on multi-product firms’ product mix. We only find weak evidence for the core competencies hypothesis, according to which, we would expect the exposed firms to reduce their product portfolio in response to the shock. But firms exposed to the shock significantly reduced their rate of product churning, relative to the control group of nonexposed firms. Moreover, we find a strong positive link between churning in the range of imported and exported products, suggesting that the product mix of imported inputs may be an important, but less understood, margin of adjustment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7923.

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Date of creation: Jul 2010
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Handle: RePEc:cpr:ceprdp:7923
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  1. Nicolas Berman & Philippe Martin & Thierry Mayer, 2009. "How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00973027, HAL.
  2. Michael W. Klein & Scott Schuh & Robert K. Triest, 1999. "Job creation, job destruction, and the real exchange rate," Working Papers 99-11, Federal Reserve Bank of Boston.
  3. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," PIER Working Paper Archive 06-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Loretta Fung, 2008. "Large real exchange rate movements, firm dynamics, and productivity growth," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 391-424, May.
  5. Gourinchas, Pierre-Olivier, 1999. "Exchange rates do matter: French job reallocation and exchange rate turbulence, 1984-1992," European Economic Review, Elsevier, vol. 43(7), pages 1279-1316, June.
  6. Goldberg, L.S. & Campa, J., 1993. "Investment in Manufacturing, Exchange-Rate and External Exposure," Working Papers 93-18, C.V. Starr Center for Applied Economics, New York University.
  7. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  8. José E. Galdón-Sánchez & James A. Schmitz Jr., 2002. "Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's," American Economic Review, American Economic Association, vol. 92(4), pages 1222-1235, September.
  9. Joseph Tracy & Linda Goldberg & Stephanie Aaronson, 1999. "Exchange Rates and Employment Instability: Evidence from Matched CPS Data," American Economic Review, American Economic Association, vol. 89(2), pages 204-210, May.
  10. 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.
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