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Exchange Rate Volatility and Firms’ Export Decisions: Evidence from Exporter Dynamics Database

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Abstract

In this paper, we study the effects of bilateral exchange rate volatility on the extensive margin of export. More specifically, we explore the effect of bilateral exchange rate volatility on the number of exporters, new entrants to the export market, and exiters from the market using destination and sector-specific export data of 28 develo** countries from 1997 to 2014 provided by the Exporter Dynamics Database of the World Bank. The estimation results show that bilateral exchange rate volatility generates a depressing effect on the extensive margin of export. However, the effect is more significant for the entrants and minor for the exiters. Looking at the asymmetric effects with respect to currency depreciations versus appreciations, we find that more significant depreciations of currencies over longer horizons intensify the depressing effect of the volatility on the extensive margin. When we disentangle the destination countries as advanced and develo** countries, we find that volatility displays a more significant asymmetric effect in the sample of develo** destination countries.

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Data Availability

The datasets generated and analysed during the current study are available from the corresponding author on request. 

Notes

  1. For example, Solakoglu et al. (2008) study shows that firms that are both importers and exporters are relatively less concerned about higher exchange rate volatility.

  2. The paper's main results still hold for alternative measures of exchange rate volatility, including 12-month median absolute deviation and GARCH(1,1). However, in the case of using a 36-month trailing standard deviation for the volatility, the results turn out to be insignificant. This result reflects that the 36-month measure puts the same weight on movements every month when constructing the volatility measure, and firms could ignore exchange rate movements two or three years back.

  3. Although the EDD dataset has more countries than we used, we were able to use data for 28 countries because firm entry and exit data are not available for all countries.

  4. However, the estimation results are robust to the inclusion of these sectors.

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Authors and Affiliations

  1. Research and Monetary Policy Department, Central Bank of the Republic of Turkiye, Ankara, Türkiye

    Cengiz Tunç

  2. Department of Management Information Systems, Çankaya University, Ankara, Türkiye

    M. Nihat Solakoglu

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  1. Cengiz Tunç
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  2. M. Nihat Solakoglu
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Correspondence to Cengiz Tunç.

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Appendix

Appendix

Table 9 Observations Per Exporting Countries
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Tunç, C., Solakoglu, M.N. Exchange Rate Volatility and Firms’ Export Decisions: Evidence from Exporter Dynamics Database. Open Econ Rev (2024). https://doi.org/10.1007/s11079-024-09775-4

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