Manufacturing Restructuring and the Role of Real Exchange Rate Shocks: A Firm Level Analysis

34 Pages Posted: 20 Aug 2008

See all articles by Karolina Ekholm

Karolina Ekholm

Stockholm School of Economics - Department of Economics; Centre for Economic Policy Research (CEPR); Center for Business and Policy Studies (SNS); CESifo (Center for Economic Studies and Ifo Institute)

Andreas Moxnes

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2008

Abstract

Empirical analyses of the impact of real exchange rate (RER) fluctuations on employment and economic performance do not take heterogeneity with respect to trade exposure into account. In this paper we use detailed Norwegian firm-level data on exports and imports to calculate firm-specific measures of trade exposure. This allows us to provide a more accurate assessment of the adjustment to real exchange rate shocks. We treat the sharp real appreciation of the Norwegian Krone in the early 2000s as a natural experiment to identify firms' response to an RER shock with respect to employment, productivity, and offshoring. We find that the relative cost shock that hit the Norwegian economy led to a significant decline in the more exposed firms' employment. But the RER shock also appears to have contributed to a process of manufacturing restructuring that boosted productivity of firms exposed to foreign markets. A sizable increase in offshoring can also be attributed to the RER shock.

Keywords: Employment, Productivity, Real Exchange Rates, Trade

JEL Classification: F14, F16, F4

Suggested Citation

Ekholm, Karolina and Moxnes, Andreas and Ulltveit-Moe, Karen Helene, Manufacturing Restructuring and the Role of Real Exchange Rate Shocks: A Firm Level Analysis (July 2008). CEPR Discussion Paper No. DP6904, Available at SSRN: https://ssrn.com/abstract=1240214

Karolina Ekholm (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9220 (Phone)
+46 8 313 207 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Center for Business and Policy Studies (SNS)

Skoldungagatan 2, Box 5629
S-114 86 Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andreas Moxnes

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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