Manufacturing restructuring and the role of real exchange rate shocks

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

Journal of International Economics, 2012, vol. 86, issue 1, 101-117

Abstract: Using a new and extensive micro data set we investigate the impact of a change in international competitive pressure on industrial performance and restructuring. Unlike previous studies we are able to account for the heterogeneity across firms in their exposure to foreign competition. We focus on a situation akin to a natural experiment, and examine the impact of a sharp real appreciation of the Norwegian Krone in the early 2000s on Norwegian manufacturing firms which differ substantially in their trade orientation. A change in the real exchange rate (RER) affects a firm through three different channels: (i) firm's export sales, (ii) firm's purchases of imported inputs, and (iii) import competition faced in the domestic market. Unlike previous studies, we are able to examine all three channels. Both net exporters and import-competing firms were exposed to increased competition due to the real appreciation. Both groups reacted by shedding labor, but only the first group experienced increasing labor productivity. Partly, the productivity improvements came from measured TFP gains, while capital deepening does not appear to have been affected by the shock.

Keywords: Productivity; Competitive pressure; Real appreciation (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (65)

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Working Paper: Manufacturing Restructuring and the Role of Real Exchange Rate Shocks (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:1:p:101-117

DOI: 10.1016/j.jinteco.2011.08.008

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