Firm Dynamics In Retail Trade: The Response Of Canadian Retailers To Exchange Rate Shocks

Eugene Beaulieu (), Jen Baggs, Beverly Lapham and Loretta Fung
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Jen Baggs: University of Victoria

No 1349, Working Paper from Economics Department, Queen's University

Abstract: We use comprehensive firm-level data to estimate the responses of heterogeneous Canadian retail firmsto real exchange rate movements. Our analysis focuses on a period characterized by large fluctuations in the Canadian dollar, providing an opportunity to quantify both intensive and extensive marginresponses in retail industries to real exchange rate shocks and to examine how those responses differacross firms, locations, and sub-industries. Our results indicate that a real Canadian currency appreciation significantly reduces a retailer's sales, employment, and profits. The strength of this negative effect is decreasing in the distance of a retailer from the US-Canada border. We do not find evidence of a strong relationship between real exchange rate movements and the number of operating firms northe probability of firm survival. These findings are consistent with the view that a real Canadian dollarappreciation increases cross-border shopping by Canadians, resulting in a negative demand shock forCanadian retailers, and the dominant response by firms to such a shock is through the intensive margin.

Keywords: Firm Dynamics; Retail Trade; Exchange Rates; Cross-Border Shopping (search for similar items in EconPapers)
JEL-codes: F10 F14 L81 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015-07
New Economics Papers: this item is included in nep-edu, nep-exp and nep-hrm
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1349.pdf First version 2015 (application/pdf)

Related works:
Journal Article: Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1349

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