Forward Looking Exporters

RePEc Short ID: pde1223
ORCID iD: 0000-0003-4785-4487

Frohm, Erik; Highkin, Emily; Mix, Carter; de Soyres, Francois

doi:10.17016/IFDP.2023.1377

Working Paper

Forward Looking Exporters

Abstract: This paper studies the role of expectations in driving export adjustment. We assemble bilateral data on spot exchange rates, one year ahead exchange rate forecasts and HS2-product export data for 11 exporting countries and 64 destinations, covering the 2006–2014 period. Results from fixed effects regressions and an instrumental variables approach show that expectations of exchange rate changes are an important channel for export adjustment. A one percent expected exchange rate depreciation over the next year is associated with a 0.96 percent increase in the extensive margin (entry of new exporters) in the 2SLS regression, with statistically insignificant effects on total exports or the intensive margin. We provide intuition for these findings with a simple model with heterogeneous firms and sticky prices, and use our model to discuss the implications of anticipation for subsequent export growth and trade elasticity measurement.

Keywords: exchange rates; heterogeneous firms; international trade;

JEL Classification: F1;

https://doi.org/10.17016/IFDP.2023.1377