Multi-Product Firms and Exchange Rate Fluctuations

Abstract

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how firms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuations. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specific marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specific and product-specific export sales and quantities. The sample period covers the years 1997–2006, during which Brazil experienced a series of drastic currency fluctuations. (JEL F14, F31, F33, O19, O24)

Small, young, and exporters: New evidence on the determinants of firm growth

“…In particular, following an emerging stream of empirical literature in international trade we investigate how different firms, in our case born globals and established exporters, respond to the same exogenous shock within a product-country destination, and how such effects is accounted for by quantity and unit values variations (see among the others, Berman et al, 2012;Chatterjee et al, 2013).…”

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

“…First, similar to Amiti et al (2014), we do not model firms' entry, exit, or selection into exporting and importing, as we condition our analysis on the subset of firms, which simultaneously import and export, and focus on their import and export quality. 5 Second, this model is partial equilibrium, hence we abstract from the impact of import exchange rate changes on wages in each country, and 4 Li et al (2015) estimate export Chinese pass-through at 96% -well above most other countries: e.g., 79% for Belgian exporters (Amiti et al, 2014); 77% for Brazilian exporters (Chatterjee et al, 2013). Only two countries exhibit export pass-through similar to that of Chinese exporters, at nearly 100% for U.S. exporters (Knetter, 1993), and 92% for French exporters, (Berman et al, 2012) 5 Exporters not importing also help to identify the linkage between import exchange rate changes and export quality.…”

“…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.…”

“…This paper is closely related to the recent, growing literature on the connections between exchange rate fluctuations and firm-level export performance, especially studies on exchange rate pass-through (Atkson and Burstein, 2008;Amiti et al, 2014;Berman et al, 2012;Bergsten, 2010;Chatterjee et al, 2013;Campa and Goldberg, 2005;Gopinath and Rigobon, 2008;Knetter, 1993;Giri, 2012;Bernini and Tomasi, 2015), and to the literature tracing imported inputs and export performance. Broadly, the exchange rate pass-through (ERPT) literature has focused on three channels leading to incomplete pass-through.…”

“…The second channel is pricing-to-market (Atkson and Burstein, 2008;Amiti et al, 2014), in which exporting firms endogenously absorb exchange rate fluctuations by adjusting their markups, which stabilizes trade price fluctuations. Third, a large literature explains incomplete pass-through by introducing local distribution costs (Berman et al, 2012;Li et al, 2015;Chen and Juvenal, 2016;Campa and Goldberg, 2005;Chatterjee et al, 2013;Giri, 2012).…”