This paper examines the impact of exchange rate movements on firm survival and sales. We exploit detailed Canadian firm-level data from 1986 to 1997, a period in which the Canadian dollar appreciated approximately 30% in the first six years and depreciated 30% in the later six years. We find that survival and sales are negatively associated with appreciations in the Canadian dollar. The impact on survival is less pronounced for more productive firms. The magnitude of the impact of exchange rate changes on firm survival and sales was comparable to the effect of CUSFTA-mandated tariff changes. JEL classification: F1Survie de l'entreprise, performance, et taux de change. Ce texteétudie l'impact des mouvements dans le taux de change sur les ventes et la survie des entreprises. On exploite une base de données détaillées au niveau de l'entreprise pour la période 1986-1997 -une période durant laquelle le dollar s'est apprécié d'à peu près 30% au cours des premiers six ans, et s'est déprécié de 30% au cours des six dernières années. Il appert que survie et ventes sont négativement co-reliées quand le dollar s'apprécie. L'impact sur la survie est moins prononcé pour les entreprises plus productives. La magnitude de l'impact des mouvements dans le taux de change sur la survie et les ventes des entreprises aété comparableà l'effet des changements de tarifs commandés par l'Accord de libre-échange Canada-US.

This paper examines the influence of large real exchange rate movements on firm turnover and production scale, and the contribution of these decisions to productivity growth. Our theoretical model predicts that home currency appreciations cause firm closure and reduce surviving firms' exports while boosting domestic sales. The net effect on sales and productivity therefore depends on changes in domestic sales and exports. Taiwanese firm-level data are used to test these predictions. The results show that real currency appreciations lead to scale expansion of surviving firms which in turn raises productivity. Our findings suggest the existence of a significant scale effect. JEL classification: F12, L11Changements importants dans les mouvements du taux de change réel, dynamique de la firme, et croissance de la productivité. Ce mémoire examine l'influence de changements importants dans les mouvements du taux de change réel sur le roulement des firmes et la taille de la production, et la contribution de ces décisionsà la croissance de la productivité. Le modèle théorique proposé prédit que des appréciations de la monnaie domestique vont entraîner la fermeture d'entreprises, réduire les exportations des entreprises qui survivent, et accroître les ventes sur le marché local. L'effet net sur les ventes et la productivité dépend donc de la nature des changements dans les ventes locales et les exportations. On utilise des données taiwanaises au niveau de la firme pour mettre au test ces prédictions. Les résultats montrent que les appréciations de la monnaie en termes réels entraînent une expansion de l'échelle de production des entreprises qui survivent, ce qui enclenche une augmentation de productivité. Les résultats suggèrent l'existence d'un effet d'échelle significatif. 1 The learning-by-exporting effect is defined as a feedback effect of exporting on a firm's productivity growth. However, little empirical evidence for this effect has been found. Bernard and Jensen's (1999) study, for example, finds little evidence for it. Aw, Chung, and Roberts (2000) locate evidence of it, but only in some industries in the Taiwanese manufacturing sector. 2 Using detailed industry-level data, Head and Ries (1999) examine the exchange rate effects on output per plant and the number of plants. In Forbes (2002a), firm performance is measured by the growth of sales, net income, market capitalization, and assets. 3 Harris (2001) suggests that real exchange rate depreciations may induce productivity slow-down via three channels: raising the costs of imported investment goods, discouraging innovation and R&D, and reducing the force of creative destruction. Owing to the lack of firm-level data on machinery imports and R&D in the Taiwanese manufacturing sector, this paper will empirically analyze the effects of real exchange rate movements on surviving firms' scale of production.

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There is a growing literature addressing the effects of exchange rate movements on manufacturing firms, but little similar analysis concerning firms in the service sector. As the service sector is the largest component of the Canadian economy and services are becoming increasingly tradable, the implication of international economy on service sector firms is an important, yet rarely explored, research question. This paper addresses the question by analyzing the effects of industry specific real exchange rate movements on the profitability, survival and sales of Canadian service sector firms. Using rich firm-level data that covers the universe of incorporated firms in Canada and service trade data, our empirical results show that real appreciations of the Canadian dollar reduce firm probability of survival, sales and profitability while depreciations have the opposite effect (a separate abstract on firm-level data is attached). In addition, the negative effect of real currency appreciations on firm survival is less pronounced for more productive firms. Our findings suggest a significant exchange rate effect on service firms similar to that found for manufacturing firms in earlier studies by Baggs and Brander (2006) and Baggs, Beaulieu and Fung (2009). When comparing the economic magnitude of the exchange rate effects on service sector firms to the effects on manufacturing firms, we find that, when facing an identical movement of the value of the Canadian dollar from the highest to the lowest level, service sector firms experience smaller increase in profit and sales but larger increase in probability of survival as compared to manufacturing firms. Acknowledgements: We are extremely

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