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Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U.S.-Canada Border

  • Jeffrey R. Campbell
  • Beverly Lapham

Consumers living near the U.S.-Canada border can shift their expenditures between the two countries, so real exchange rate fluctuations can act as demand shocks to border areas' retail trade industries. Using annual county-level data, we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries. In three of the four industries we consider, the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements. For these industries, the response of retailers' average size is less pronounced. The rapid response of net entry is inconsistent with any model of persistent deviations from purchasing power parity that depends on retailers' costs of changing nominal prices.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8558.

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Date of creation: Oct 2001
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Publication status: published as Campbell, Jeffrey R. and Beverly Lapham. "Real Exchange Rate Fluctuations And The Dynamics Of Retail Trade Industries On The U.S.-Canada Border," American Economic Review, 2004, v94(4,Sep), 1194-1206.
Handle: RePEc:nbr:nberwo:8558
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