The currency denomination of exports — A questionnaire study

We report survey results on the currency choice of a random sample of Swedish exporters. We find that for an overwhelming share of exports, the price, invoice and settlement currency is the same. The currency of the customer is the most used, with Swedish kronor and vehicle currencies accounting for approximately equal shares. Currency choice is similar for intra-firm and between-firm trade. We also find that negotiations are important for both the price and for the currency choice. A minority of firms use posted prices for their main exports — the median price adjustment for those firms is once per year.     

Exports versus multinational production under nominal uncertainty

This paper examines how nominal uncertainty affects the choice that firms face to serve a foreign market through exports or to produce abroad as a multinational. I develop a two-country, stochastic general equilibrium model in which firms make production and pricing decisions in advance, and I consider its implications for the relative attractiveness of exporting and multinational production. I find that when multinational sales are priced in the local currency while exports are priced in the producer currency, destination volatility benefits exporters: during a foreign nominal contraction, the foreign exchange rate appreciates, causing exports to be relatively cheaper. Exporters gain non-linearly through demand, making profit convex in prices. As foreign volatility rises, the model implies that the home country should serve the foreign country relatively more through exports. I take this implication to bilateral U.S. data, using inflation volatility as a proxy for nominal volatility. Using sectoral data on sales by majority-owned foreign affiliates matched with U.S. exports, I find that higher inflation volatility is associated with a significantly lower ratio of multinational sales to total foreign sales.     

Exports versus multinational production under nominal uncertainty

This paper examines how nominal uncertainty affects the choice that firms face to serve a foreign market through exports or to produce abroad as a multinational. I develop a two-country, stochastic general equilibrium model in which firms make production and pricing decisions in advance, and I consider its implications for the relative attractiveness of exporting and multinational production. I find that when multinational sales are priced in the local currency while exports are priced in the producer currency, destination volatility benefits exporters: during a foreign nominal contraction, the foreign exchange rate appreciates, causing exports to be relatively cheaper. Exporters gain non-linearly through demand, making profit convex in prices. As foreign volatility rises, the model implies that the home country should serve the foreign country relatively more through exports. I take this implication to bilateral U.S. data, using inflation volatility as a proxy for nominal volatility. Using sectoral data on sales by majority-owned foreign affiliates matched with U.S. exports, I find that higher inflation volatility is associated with a significantly lower ratio of multinational sales to total foreign sales.     

Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis

We use Mexican firm-level data to study the role of currency mismatches in the corporate sector in exacerbating the negative effects of a devaluation. We also investigate what drives Mexican firms to borrow in foreign currency. We find that holding dollar denominated debt in a devaluation adversely affects firms’ earnings and investment. However, exporters invested more than non-exporters in the same period. We also find that the negative effect of dollar debt was stronger than the positive effect of exports in the 1994 crisis for firms with positive dollar debt and/or exports, relative to firms that did not borrow abroad and/or export. This was a result of imperfect currency matching by firms. However, in the 1998 crisis firms managed the denominations of their inflows and outflows much better and these two effects were roughly equal in magnitude. We also find some evidence of currency matching by exporters, especially after the introduction of the floating exchange rate.     

Export prices,selection into exporting and market size: Evidence from China and India

This paper empirically analyses the export pricing behaviour of Chinese and Indian exporters when there is selection into exporting. Previous exchange rate pass-through estimates that did not take selection into account could be biased if selection into exporting is correlated with pricing strategy. We use 6-digit product-level data across high- and low-income export destinations over the period 1994–2007 and assess a number of determinants of the degree of pass-through of exchange rates to export prices, such as the level of external demand, exporter’s wage cost, degree of competition in export markets, currency volatility and the direction of currency movements. We find systematic differences in the pricing strategies of Chinese and Indian exporters while uncovering a selection bias in exports to high-income markets, although the pricing of exports to low-income markets is independent of the decision to export. Export prices do not increase systematically with the destination market per capita income, and tend to be less sensitive in shipments to advanced nations. Export prices of India are sensitive to the volatility of the trade-weighted nominal effective exchange rate (NEER), indicating heterogeneity in prices to maintain competitiveness, but not in China as volatility is insignificant given a fixed currency system. It is also revealed that a country with a relatively flexible currency regime and arms-length trade such as India is more likely to exhibit incomplete pass-through, whereas a country with an inflexible currency system and involved in outward processing trade is more likely to have full pass-through as shown in the case of China.     

Currency collapses and output dynamics in commodity dependent countries

This paper provides new empirical evidence on the relationship between currency collapses (i.e. large nominal depreciations or devaluations) and real output by paying a specific attention to commodity exporting countries. Using a dataset including 108 emerging and developing economies for the period 1970–2016, we document and estimate what happens to output growth during episodes of currency collapses for commodity-dependent and non commodity-dependent countries. One particular feature of our analysis is to control for war events. We find that currency crises occur more frequently in commodity-dependent countries (one crisis every 17 years versus 30 years for non commodity-dependent countries) and with a larger magnitude (median depreciation about 12% points larger for commodity-dependent countries). In both groups of countries, output growth declines in response to the currency collapse. It appears however that output growth starts to slowdown earlier in commodity-dependent countries while the impact is more persistent in non commodity-dependent countries. The magnitude of the output growth slowdown is very close between the two groups of countries. Finally, we find that the output growth-currency collapse relationship differs among commodity-dependent countries according to the category of their main exported commodity. More precisely, it turns out that currency collapses affect mainly the output growth of agricultural exporters while the impact on the output growth of energy or mineral exporters is not significant.     

Does real exchange rate depreciation increase productivity? Analysis using Korean firm‐level data

We examine the effects of real exchange rate (RER ) depreciation shocks on firm productivity. Using the firm‐level data of Korean manufacturing industries for 2006–13, we distinguish between yearly RER movement and persistent RER depreciation during 2007–09 and analyse how each affects productivity. We find the positive effect of RER depreciation on productivity among exporters, and this positive effect increases with higher export exposure. However, the positive productivity gain disappears when the depreciation persists. Our findings suggest that while immediate depreciation leads to productivity upgrade via price competitiveness and scale expansion, persistent depreciation nullifies the productivity gain by slackening the innovation effort.     

Skill Upgrading and the Real Exchange Rate

This paper examines the effect of changes in the real exchange rate on skill upgrading in the case of Chile. Using plant‐level data from the manufacturing sector, we find that a real depreciation increases the share of skilled workers in the total wage bill in exporters but not in non‐exporters. This result suggests that depreciations or, more generally, increases in export profitability, may induce exporters to adopt more skill‐intensive technologies. This finding gives support to recent models of trade that highlight the possible effect of the real exchange rate on skill upgrading and wage inequality. This paper also finds that real depreciations increase plants’ export intensity, suggesting that skill upgrading for firms that are already exporters is the channel through which real exchange depreciations affect wage inequality.     

Firm strategies in expanding and diversifying exports

This paper provides novel empirical evidence on the patterns and dynamics of exports by Irish firms over the past two decades from a highly detailed data set of export records at the firm‐product‐destination level. We identify patterns of export concentration and specialisation and how these evolved over time. Firms’ strategies for export growth along product and destination markets mixes are then examined and the contributions of intensive (average sales) and extensive (number of products or markets) margins to overall exports and to export growth are calculated. We find that most exporting firms are quite small, selling a few products to a small number of destinations while export values are dominated by a relatively small group of highly globalised large firms selling many products to many destinations. Continuing exporters frequently introduce new products, drop products and enter and exit markets. Export growth in the case of Irish‐owned exporters appears largely driven by the extensive margin of product and destination changes. However, the opposite pattern holds for foreign‐owned firms with growth mainly coming from the intensive margin.     

Movements of People for Movements of Goods?

Whilst it is well established to think of international tourism as a type of exports, namely ‘home’ exports, the potential of tourism flows as an engine for fostering trade among countries is a poorly studied topic. In this paper, we show that this relationship can be studied at a very detailed level by exploiting the disaggregation of existing information on international trade and inbound tourism. We consider a sample of 25 countries belonging to the European Union, a region that has been interested by common shocks such as the establishment of the euro as the new currency for many countries and the liberalisation in the air transport market. We carry out a panel data analysis by means of which we assess whether international tourist arrivals by a given country activate additional exports towards the same country. We find not only that tourism can promote exports, but also that this effect displays important differences depending on whether or not consumption goods are considered. This finding is consistent with the idea that the experience of tourists in a given destination reduces the fixed costs of trade, thus facilitating access to the advantages of international trade for more peripheral economies.     

Learning to export: Export growth and the destination decision of firms

I find evidence that the geographic expansion of firm exports occurs slowly over time and that a large share of export growth is due to incumbent exporters entering new destinations. New exporters enter large countries and destinations with characteristics similar to their domestic market. Less similar, distant or less developed countries are entered by firms already exporting to other destinations. I formulate a dynamic general equilibrium model to test if these patterns are due to firms learning how to export (as other recent empirical findings have suggested) or other factors considered in the literature. In this model, heterogeneous firms experience learning in the form of market entry costs that depend on export history. Using Russian firm level data, I find that learning plays a significant role in explaining the observed entry patterns, which standard trade models cannot account for.     

A Firm-level Examination of the Exports Puzzle: Why East Asian Exports Didn't Increase After the 1997–1998 Financial Crisis

We analyse a detailed panel dataset on Indonesian manufacturing firms to characterise the exports puzzle: the surprising absence of export-led growth after the massive currency devaluation during the 1997–1998 Asian financial crisis. Our results show that, consistent with trade theory predictions following better terms of trade, entry into export markets increased dramatically. In conflict with the same predictions, however, many pre-crisis exporters quit exporting. Thus stagnant export growth cannot be attributable to a lack of entrepreneurial ambition or activity amongst would-be exporters. Rather, it apparently resulted from constraints prohibiting continued exporting by pre-crisis exporters. Managerial reports of perceived constraints reveal little about why so many firms ceased exporting. However, ‘better’ firms, as proxied by foreign ownership, involvement in research and development, or investment in training, were more likely to continue exporting post-crisis.     

Analysis on the determinants of currency invoicing in Korean trade

We investigate the determinants of currency invoicing in trade using import and export transactions data between Korea and its 30 major trading partners from 2000 to 2013. We find a noticeably different pattern of currency invoicing from advanced countries. For example, a large market share of Korean exporters in partner countries does not guarantee more use of the Korean won in currency invoicing. This might be attributed to a low degree of Korean won's internationalisation and the strong coalescing effect. We also observe that the higher the level of industry product differentiation, the weaker the coalescing motive. In addition, we verify that the share of invoicing in the currency of Korea's trading partner tends to be higher when the partner country has (i) a larger trade volume, (ii) higher level of financial development, (iii) lower inflation and lower price volatility and (iv) its own currency with lower transaction costs.     

Cross Hedging with Currency Forward Contracts

This study examines the behavior of a competitive exporting firm that exports to a foreign country and faces multiple sources of exchange rate uncertainty. Although there are no hedging instruments between the home and foreign currencies, there is a third country that has well‐developed currency forward markets to which the firm has access. The firm's optimal cross‐hedging decision is shown to depend both on the degree of incompleteness of the currency forward markets in the third country, and on the correlation structure of the random spot exchange rates. Furthermore, the firm is shown to be more eager to produce and expand its exports to the foreign country when the missing currency forward contracts between the home and foreign currencies can be synthesized by the existing currency forward contracts. In this case of perfect cross hedging, the separation theorem holds but the full‐hedging theorem may or may not hold. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark     

The role of inbound tourist flows in promoting exports

While it is established that tourism benefits growth through increased employment and investments, it is not well understood whether tourism has an effect on exports. This paper explores exports as an additional channel through which tourism affects domestic economic activity. Using bilateral tourist and trade flows, the paper explores the causal effect of tourist flows on exports. To deal with endogeneity, two instruments are constructed and subsequently used on two different sets of exporters, one of the instruments being the number of casualties due to terrorism in a country. We find that tourism affects mainly the exports of differentiated products. Specifically, we find that tourism benefits the exports from non‐OECD exporters of processed food products and this effect is only estimated for South–North trade with an elasticity close to 1. For European countries, the findings point in the same direction; tourism affects differentiated consumer products and processed food with elasticity close to 1, which adds plausibility to the earlier results. We also find a lagged effect for tourism mainly on the export of consumer goods (for the two samples) and processed food products (for European countries). The results suggest that exporting is an additional channel through which tourism can stimulate domestic economic activity in the tourist destination.     

Imports and Exports at the Level of the Firm: Evidence from Belgium

This paper explores a newly available panel dataset merging balance sheet and international trade transaction data for Belgium. Both imports and exports appear to be highly concentrated among few firms and seem to have become more so over time. Focusing on manufacturing, we find that facts previously reported in the literature as applying only to exports actually apply to imports too. We note that the number of trading firms diminishes as the number of export destinations or import origins increases. The same is true if we consider the number of products traded. Our results generally point to a process of self‐selection in both export and import markets. Also, the productivity advantage of exporters reported in the literature may be overstated because imports were not considered. We find that firms that both import and export are the most productive, followed, in descending order, by importers only, exporters only and non‐traders. Our results also show the existence of fixed costs of imports, which appear to be of similar magnitude as those of exports.     

An explicit partial‐equilibrium model to justify the Generalized Marshall‐Lerner condition (GML)

Robinson's derivation of the Marshall‐Lerner condition (ML) is more general in that she considers a situation where initially the trade balance is not in equilibrium with the incorporation of the supply curves of exporters. This paper examines a partial equilibrium analysis of a country's imports and exports markets within a theoretical model which considers both the demand and supply sides in these two internationally traded‐goods markets. The aim here is to show explicitly how the Generalized Marshall‐Lerner condition (GML) of Robinson can be obtained. We examined the two effects of the nominal depreciation of the domestic currency on the trade balance: the volume effect and the value effect and how they counterbalance each other. We found that the standard Marshall‐Lerner condition (ML) was not sufficient when the trade balance was initially in deficit and it was also not necessary if the trade balance showed an initial surplus. Moreover, this study provides a new interpretation for Robinson’ sufficiency condition where the trade balance must improve following a nominal depreciation of domestic currency when the elasticity of foreign demand exceeds the ratio of imports to exports. This paper also examines the situation of a small open economy which could not influence the world prices where the foreign demand for exports and the foreign supply of exports are infinitely large. Finally, there is a discussion on two policy implications for exchange rate regulation: the amount of devaluation that is necessary to improve a given trade imbalance as a governments intervention and additional support for the slow improvement of the trade balance in the short run after a devaluation policy known as the J‐Curve effect.     

Strategic hedging: Evidence from Brazilian exporters

How and why do exporters adjust their portfolios of destination countries in response to exchange rate movements? How do such geographic export diversification choices affect firm performance? Drawing on the corporate strategy and international business literature, we argue that firms enjoying low exchange rate competitiveness can increase their performance by expanding their exports to different world regions and vice versa. Studying a panel of Brazilian exporters during the years 2001–2010 and using a system of moderated mediation models with firm, industry and period fixed effects, we find that unrelated geographic diversification of exports is more effective than related diversification in counteracting exchange rate pressures.     

The role of endowments,technology and size in international trade: new evidence from product-level data

Using product-level trade data, we empirically investigate the export patterns of more than 150 countries in their exports to the USA, Brazil, India, and Japan. We document strong evidence that exporters specialize according to their relative factor endowments, technology, and economic size. More developed, capital abundant countries are found to export products of higher unit values and a wider range of products to developed, emerging and developing markets. More developed, economically larger, and technologically advanced countries are also the major exporters of new products, spanning a wide range of product categories with high unit values. Our findings provide important insights into the macro phenomenon that a large proportion of the global trade takes place among developed economies, and that the latter are also major exporters to developing markets.     

Firm heterogeneity and aggregate business services exports: Micro evidence from Belgium,France, Germany and Spain

This paper uses detailed micro data on services exports at the firm–destination–service level to analyse the role of firm heterogeneity in shaping aggregate services exports in Belgium, France, Germany and Spain from 2003 to 2007. We decompose the level and the growth of aggregate services exports into different trade margins paying special attention to firm heterogeneity within countries. We find that the weak export growth of France is at least partly due to poor performance by small exporters. By contrast, small exporters are the most dynamic contributors to the aggregate exports of Belgium, Germany and Spain. Our results highlight the importance of firm heterogeneity in understanding aggregate export growth.