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

Abstract

The thesis exammes the effect of exchange rate variability on firms' export decisions, using data for UK manufacturing firms. We separately investigate the relationship between the changes of level of exchange rate and exports and that between exchange rate uncertainty and exports. Our results show that export extensive margin is not significantly related to changes in the level of exchange rates, whereas exchange rates have a significant and negative impact on the export intensity. Since industry heterogeneity is important in the effect of exchange rate level changes, we further explore possible explanations. In particular, we test whether external orientation and market structure play a role in the effect. Our results provide significant evidence for the role of external orientation and market structure. We also find significant evidence for the hysteresis effect of exchange rate uncertainty on exports, using new measures of uncertainty. In both cases, the behaviour of multinationals is investigated. We find that multinationals are less likely to be negatively affected by both changes of level of exchange rate and exchange rate uncertainty than indigenous firms.It contributes to the micro econometric literature in several aspects. Our evidence for industry heterogeneity from UK firm level data is new. Our explanations for industry heterogeneity by testing two hypotheses are the first attempt to investigate the factors driving different effects across industries. New measures of exchange rate uncertainty and related new method are used to test the hypothesis of hysteresis effects of uncertainty on trade. The use of micro data and new measures enable us to overcome the econometric difficulties and problems in previous studies. We also investigate whether multinationals' export behaviour is different from that of indigenous firms in response to exchange rate fluctuations. As far as we know, the multinationals' ability to deal with currency risk has never been examined before. The thesis provides new evidence for the multinationals' advantage of internalising currency risk over indigenous firms under exchange rate movements. II AcknowledgementsI would like to express my gratitude to all those who helped me in completing this thesis. I am deeply indebted to my supervisors Professor David Greenaway and Dr.Richard Kneller for their stimulating suggestions, guidance and encouragement throughout my PhD study. They generously spent their time, energy and insights to help me find this interesting topic and shape my understanding of it. I also wish to thank Sue Berry for her friendly and efficient assistance in organizing those fortnightly supervision meetings over more than three years.

Exchange Rate Induced Export Quality Upgrading: A Firm-Level Perspective

“…32 However, Greenaway et al (2008) find that exchange rate movements have a trivial effect on UK manufacturing firms' entry probability.…”

“…X f,t−1 is a vector of time-varying attributes of firm f in year t − 1, containing firm-level productivity, capital intensity, 22 Similar specifications are used by Berman et al (2012), Chen and Juvenal (2016), Greenaway et al (2008), and Chatterjee et al (2013), who note that the estimated coefficients will capture the long term response of the dependent variable (quality) to changes in the exchange rate. For robustness, we also estimate the benchmark regression after taking firm-difference, and we find that our results remain qualitatively unaffected.…”

Exchange Rate Uncertainty and Export Decisions in the UK

“…Here we draw on information in Greenaway, Kneller and Zhang (2007), who show that changes in 3-digit industry level real effective exchange rates (REER) rely principally on the Euro (German Mark) and US dollar exchange rates. We use exchange rate data (spot and forward) for these (Euro/GBP and USD/ GBP) and compute the weighted average industry specific exchange rate uncertainty by using normalized export weights for the two currency areas in each 3-digit industry.…”

Exchange rate movements and export market dynamics: evidence from China

“…Goerg and Spaliara (2013) find a positive relationship between exchange rate and the hazard of exit in their paper studying the effect of financial pressure on export market exit. Greenaway et al (2007), on the other hand, find no significant effect of exchange rate on entry decisions for a sample of UK firms. Li et al (2015) find that a 10% appreciation reduces the probability of new entry by 0.6% and the probability of continuing in the export market by 1.1%.…”