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Exchange Rates and Exports: Evidence from Manufacturing Firms in the UK

  • David Greenaway,
  • Richard Kneller,
  • Xufei Zhang

Our focus is the effects of exchange rate movements on firm decisions on export market entry and exit and export intensity. The analysis breaks down export adjustments between changes in export share by existing exporters and changes due to entry to and exit from export markets. Using data on a large sample of UK manufacturing firms, we find that exchange rate movements have little effect on firm's export participation and exit decisions. However, they do have a significant impact on export shares after entry. The responsiveness of the export share to exchange rate changes is not quantitatively small: one index point depreciation in the REER index will increase export share by about 1.28 percent. We also investigate the effects of exchange rate movements on the export behavior of multinationals, and find their export behavior is less likely to be affected by exchange rate changes than that of indigenous firms.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/13.

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Handle: RePEc:not:notgep:07/13
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  2. Andrew B Bernard & J Bradford Jensen, 2001. "Entry, Expansion, and Intensity in the U.S. Export Boom, 1987-1992," Working Papers 01-09, Center for Economic Studies, U.S. Census Bureau.
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  7. Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
  8. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August.
  9. Wei, Shang-Jin, 1999. "Currency hedging and goods trade," European Economic Review, Elsevier, vol. 43(7), pages 1371-1394, June.
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  11. Peter B. Clark, 1973. "Uncertainty, Exchange Risk, And The Level Of International Trade," Economic Inquiry, Western Economic Association International, vol. 11(3), pages 302-313, 09.
  12. Anderton, Robert & Skudelny, Frauke, 2001. "Exchange rate volatility and euro area imports," Working Paper Series 0064, European Central Bank.
  13. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  14. Kristin J. Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," NBER Working Papers 9095, National Bureau of Economic Research, Inc.
  15. Makin, John H, 1978. "Portfolio Theory and the Problem of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 33(2), pages 517-34, May.
  16. Anderton, R. & Skudelny, F., 2001. "Exchange Rate Volatility and Euro Area Imports," Papers 64, Quebec a Montreal - Recherche en gestion.
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