The Effect of Exchange Rates on Firm Exports: The Role of Imported Intermediate Inputs

Authors


  • The authors gratefully acknowledge financial support from the Leverhulme Trust under Programme Grant F/00 114/AM. The authors would also like to thank Peter Egger and an anonymous referee for valuable comments.

Abstract

In this paper we investigate the effect of exchange rate changes on the exports of UK manufacturing firms, but draw on the macro literature to consider the effects exchange rates have on imported intermediate inputs. Real exchange rate appreciations make the foreign export price of goods and services produced by domestic firms more expensive, but also make imported inputs cheaper. Our results provide support for this view; we find a significant negative effect from a measure of the export destination weighted real effective exchange rate and an offsetting effect from the imported intermediate input weighted exchange rate on export sales.

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