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Exchange rate movements,firm-level exports and heterogeneity

Author

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  • Antoine Berthou

    () (Banque de France, 31 rue Croix des Petits Champs, 75001 Paris)

  • Emannuel Dhyne

    () (Economics and Research Department, NBB)

Abstract

This paper provides an estimation of the reaction of the firm-level exports consecutive to real exchange rate movements – the exchange rate elasticity of exports. Following recent theoretical works emphasizing the role played by firm heterogeneity, we test in particular how the exchange rate elasticity may be affected by firm-level productivity, and how the heterogeneous reaction of different firms may contribute to shape the aggregate reaction of countries’ exports. The analysis relies on a unique cross-country micro-based dataset of exporters available for 11 European countries (2001-2011), which details in particular information about ??rms’ productivity and export performance. Our results show that while the average exchange rate elasticity across firms is quite weak, it is also highly heterogeneous. The least productive firms within each country and sector tend to react more to real exchange rate movements than the most productive firms. This weak reaction of highly productive and large exporters tends to reduce the macroeconomic exchange rate elasticity in all countries. Cross-country differences in the shape of the productivity distribution among exporters have a strong influence on the macroeconomic exchange rate elasticity: countries populated with a higher density of low productive firms tend to respond more to exchange rate movements in terms of aggregate exports than countries populated with highly productive exporters.

Suggested Citation

  • Antoine Berthou & Emannuel Dhyne, 2018. "Exchange rate movements,firm-level exports and heterogeneity," Working Paper Research 334, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201801-334
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    References listed on IDEAS

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    More about this item

    Keywords

    Firm-level exports; heterogeneity; exchange rates movements.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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