Exchange Rates and Trade: How Important is Hysteresis in Trade?

Jose Campa

No 2606, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper looks at the responsiveness of a country's export supply to exchange rate changes and measures its quantitative importance by breaking down export adjustments between changes in output levels by existing exporters (intensive margin) and movements due to changes in the number of exporters (extensive margin). Using data on a representative sample of Spanish manufacturing firms, the paper finds sunk costs hysteresis in entry and exit to be an important factor in determining export market participation, but unrelated to exchange rate uncertainty. The sunk costs of entering the market appear to be much larger than the costs of exiting the market. Finally, although hysteresis exists, its effect on the responsiveness of aggregate trade volumes to exchange rate changes is quantitatively small. A 10% home currency depreciation results in an increase in export volume due to the increase in the number of exporting firms of only 1.5% of export volume.

Keywords: Hysteresis; Exchange rate volatility; Entry and exit in export markets; Export elasticity (search for similar items in EconPapers)
JEL-codes: F31 F33 F36 (search for similar items in EconPapers)
Date: 2000-11
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Exchange rates and trade: How important is hysteresis in trade? (2004)
Working Paper: Exchange rates and trade: How important is hysteresis in trade? (2000)
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