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Exchange rate movements, firm-level exports and heterogeneity. National Bank of Belgium Working Paper No. 334

Berthou, Antoine and Dhyne, Emmanuel (2018) Exchange rate movements, firm-level exports and heterogeneity. National Bank of Belgium Working Paper No. 334. [Working Paper]

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    Abstract

    This paper provides an estimation of the reaction of 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 firms’ 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.

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    Item Type: Working Paper
    Uncontrolled Keywords: Firm-level exports, heterogeneity, exchange rates movements
    Subjects for non-EU documents: Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    EU policies and themes > External relations > international trade
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 29 Nov 2019 16:36
    Number of Pages: 51
    Last Modified: 29 Nov 2019 16:36
    URI: http://aei.pitt.edu/id/eprint/97478

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