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The effect of exchange rate shocks on firm-level exports: evidence from the Brexit vote

Ana Fernandes and L. Alan Winters

No 13253, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper exploits the abrupt and sharp depreciation of the British Pound after the Brexit referendum as a quasi-natural experiment to investigate the effect of exchange rate shocks on export quantity, price, entry and exit. We use transaction-level export data for the universe of exporters in Portugal. Using monthly observations on export quantity and price for the same firm exporting the same product to buyers in the UK and in other countries, allows us to cleanly identify the differential response to the shock for the UK market, relative to other markets. We find that exporters reduced their mark-up in the UK market after the referendum shock. Our estimates imply a large pricing-to-market coefficient and exchange rate pass-through. Exporters that are more productive adjust their mark-ups by more after the exchange rate shock, and have lower pass-through. There is more pricing-to-market for consumer goods than for intermediate inputs. Within the same firm-product, export quantity to the UK also decreased after the shock. The referendum shock reduced the rate of export entry to the UK market by Portuguese firms and the probability of their continuing to export in the UK.

Keywords: Brexit vote; exchange rate pass-through; exchange rate shocks; exports; extensive margin of trade; intensive margin of trade; pricing-to-market (search for similar items in EconPapers)
JEL-codes: F14 F31 F32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2018-10
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