Manufacturing restructuring and the role of Real exchange rate shocks: A firm level analysis

Karolina Ekholm, Andreas Moxnes and Ulltveit-Moe, Karen-Helene

No 6904, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: F14 F16 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ifn and nep-opm
Date: Written 2008-07

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