DP15524 Currency Shocks and Firm Behaviour in Ethiopia and Uganda

Author(s):	Tewodros Gebrewolde, Michael Koelle, Pramila Krishnan, Andualem Telaye Mengistu
Publication Date:	December 2020
Keyword(s):	Currency of Invoicing, Currency shocks
JEL(s):
Programme Areas:	Development Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15524

We examine the links between currency shocks and firm behaviour, with data from Ethiopia and Uganda, two countries with different exchange-rate regimes. We construct measures of currency shocks using matched customs and firm-level data, based on both the actual currency of invoicing and bilateral exchange rates. We find that currency depreciations based on the currency of invoicing to importers in Ethiopia lower the likelihood of using imported inputs, lower the share of imported inputs for firms, and lowers productivity. In contrast, there are no effects on any similar firm-level outcomes for Uganda. The use of bilateral currency shocks obtains confused results in both countries, signalling the value of using the currency of invoicing in this analysis.