Firm survival, performance, and the exchange rate

Baggs, Jen; Beaulieu, Eugene; Fung, Loretta

doi:10.1111/j.1540-5982.2009.01513.x

Cited by 58 publications

(78 citation statements)

References 41 publications

(112 reference statements)

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“…Put another way, depreciations (appreciations) of the real exchange rate increase (decrease) the probability that a given plant will stay in the market. This is consistent with my hypothesis and the findings in Baggs, Beaulieu and Fung (2009). The positive and significant parameter on productivity indicates that plants with lower measured productivity are more likely to exit the market than more productive producers, which again is consistent with my hypothesis and with many other micro-level studies.…”

Section: Results and In-sample Model Performancesupporting

confidence: 81%

“…These results are consistent with the findings in Baggs, Beaulieu and Fung (2009), who use a reduced-form model to study the effects of movements in the exchange rate on plant survival. They are also consistent with the findings in Tomlin and Fung (2009), who use a reduced-form model to study the effects of real exchange movements on the distribution of productivity in the manufacturing sector as a whole.…”

Section: Résumésupporting

confidence: 82%

“…This is consistent with the hypothesis that new, more productive plants are replacing less productive plants in the productivity distribution, and therefore contributing to aggregate productivity growth. 18 Second, I find that plants at the low end of the productivity distribution are more likely to exit the market than plants with high productivity (Collard-Wexler, 2009;Baggs, Beaulieu and Fung, 2009). Figure 2 shows the probability of exiting 18 Suppose ωC , ωX and ωE are the respective productivities of a continuing plant, an exiting plant and an entering plant, such that ωC > ωE > ωX .…”

Section: Productivity Characteristicsmentioning

confidence: 99%

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Exchange rate fluctuations, plant turnover and productivity

Tomlin

2014

International Journal of Industrial Organization

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In a small open economy fluctuations in the real exchange rate can affect plant turnover, and thus aggregate productivity, by altering the makeup of plants that populate the market. An appreciation of the local currency increases the level of competition in the domestic market as import competition intensifies and export opportunities shrink, forcing less productive plants from the market and compelling new entrants to be more competitive than they otherwise would have been. Depreciations have the opposite effect, as import competition weakens and new export opportunities arise, less competitive plants are able to continue to operate in the market and crowd out new, more productive entrants. This paper develops a dynamic structural model that captures the effect of plantlevel productivity and real exchange rate fluctuations on plant entry and exit decisions in the Canadian agricultural implements industry, and how this, in turn, affects aggregate productivity. The model's dynamic parameters are estimated in two stages. Variable profit parameters and the per-period fixed cost of operation are estimated first using the Nested Pseudo Likelihood (NPL) algorithm, and then the parameters characterizing the distribution of unobserved potential entrant productivity, along with the cost of entry, are estimated in a second stage using the Method of Simulated Moments (MSM). Finally, simulations of the model are used to investigate the effects of shocks to the exchange rate process on aggregate industry productivity. JEL classification: D21, D24, L11 Bank classification: Productivity; Exchange rates; Market structure and pricing RésuméDans une petite économie ouverte, les variations du taux de change réel peuvent influer sur la rotation des usines, et donc sur la productivité globale, par les modifications qu'elles entraînent dans la configuration du marché. Lorsque la monnaie du pays s'apprécie, le niveau de concurrence augmente sur le marché intérieur du fait que la concurrence des importations s'intensifie et que les possibilités d'exportation s'amenuisent, chassant ainsi les usines moins productives du marché et obligeant les nouvelles venues à se montrer plus compétitives qu'elles ne l'auraient fait autrement. À l'inverse, les dépréciations rendent les importations moins concurrentielles et ouvrent de nouveaux débouchés à l'étranger, ce qui permet aux usines moins compétitives de rester sur le marché et de tenir à l'écart de nouvelles concurrentes, plus productives. L'auteur élabore un modèle structurel dynamique qui reproduit l'incidence de la productivité individuelle des usines et des variations du taux de change réel sur les décisions des usines d'entrer dans le secteur canadien du matériel agricole ou d'en sortir, et les répercussions de ces décisions sur la productivité globale. L'estimation des paramètres dynamiques du modèle se fait en deux temps. L'auteur procède tout d'abord à l'estimation des paramètres des bénéfices variables et des charges d'exploitation fixes par période au moyen de l'algorithme i...

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Section: Results and In-sample Model Performancesupporting

confidence: 81%

Section: Résumésupporting

confidence: 82%

Section: Productivity Characteristicsmentioning

confidence: 99%

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Exchange rate fluctuations, plant turnover and productivity

Tomlin

2014

International Journal of Industrial Organization

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“…Baggs, Beaulieu, and Fung, 2009;Berman, Martin, and Mayer, 2012;Amiti, Itskhoki, and Konings, 2014;Cheung and Sengupta, 2013;Freund, Chang, and Wei, 2011;Tang and Zhang, 2012;Liu, Lu, and Zhou, 2013;Li, Ma, and Xu, 2015). Most papers in this literature have focused on one specific response of heterogeneous firms to exchange rate changes.…”

Section: Introductionmentioning

confidence: 99%

Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data

Fatum

Liu

Tong

et al. 2015

gwp

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The premise of beggar-thy-neighbor policies and currency wars is that currency depreciations lead to export growth. This premise, however, is far from validated as the existing economic literature largely either fails to find significant trade flow effects of currency fluctuations or finds that these effects are only minor. We revisit the question of whether currency fluctuations are systematically associated with trade flows using rich and unique firm level Chinese customs data on China-US trade over the 2000 to 2011 period that allows us to consider firm involvement in processing trade and firm dynamics in both export and import markets. Our firm-level based estimation of trade elasticities suggest that the China-US trade balance strongly responds to changes in the CNY/USD rate. This finding is particularly pronounced when we distinguish between ordinary and processing firms. Our results thus suggest that the influence of exchange rates on trade flows is stronger than previously thought and add insights to the policy debate on beggar-thy-neighbor policies and currency wars by, at least in principle, validating the underlying premise of such policies.

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“…A large and growing number of studies have shed light on the effect of foreign exchange rate fluctuations on export performance including export volume (the exchange rate elasticity of export quantity) and export price (exchange rate pass-through, ERPT) (Shambaugh, 2008;Colacelli, 2009). 1 Another strand of literature highlights the relationship between exchange rate movements and extensive or intensive margin of trade on the product side (Bernard and Jensen, 2004a;Baggs et al, 2009). In the vast relevant literature there are even some evidences that link the effect of exchange rate movements to firm-level characteristics trigged by the growing studies of firm's heterogeneity (Das et al, 2007;Bernard et al, 2011) and the better availability of firm-level data, such as Berman et al (2012) and Li et al (2015).…”

Section: Introductionmentioning

confidence: 99%

Exchange rate movements and export market dynamics: evidence from China

Huang

2017

Economics

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This paper highlights the relationship between foreign exchange rate fluctuations and firms' export market dynamics using a Chinese firm-level production data and a firm-level trade data over the period of [2000][2001][2002][2003][2004][2005][2006]. This study adopts a discrete-time survival model in our empirical investigation and further executes several extensions and robustness checks to the baseline results. The main results of the paper can be summarized as follows: First, an exchange rate appreciation increases the likelihood of export market exit and decreases the probability of export market entry. Second, high productivity firms are less likely to exit from export markets and more likely to enter export markets in the period of exchange rate appreciation. Third, exchange rate appreciation decreases the likelihood of export market entering and increases the likelihood of export market exiting more for private-owned firms, young firms and non-eastern firms. Finally, other sources of heterogeneity, such as extensive margins, import demand elasticity, different destinations, U.S. dollar peg, and the liberalization of trading rights is also important to the effects of exchange rate changes. JEL F14 F31 F32 F41

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Firm survival, performance, and the exchange rate

Cited by 58 publications

References 41 publications

Exchange rate fluctuations, plant turnover and productivity

Exchange rate fluctuations, plant turnover and productivity

Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data

Exchange rate movements and export market dynamics: evidence from China

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