DP7923 Product adjustments: A firm-level analysis of the impact of a real exchange rate shock

Author(s): Andreas Moxnes, Karen-Helene Ulltveit-Moe
Publication Date: July 2010
Keyword(s): firm restructuring, heterogeneous firms, product differentiation, real exchange rate shock
JEL(s): F12, F14, F31, L16
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7923

Using a new and extensive micro data set we investigate the impact of a change in international competitive pressure following a real exchange shock on multi-product firms? product mix. We only find weak evidence for the core competencies hypothesis, according to which, we would expect the exposed firms to reduce their product portfolio in response to the shock. But firms exposed to the shock significantly reduced their rate of product churning, relative to the control group of nonexposed firms. Moreover, we find a strong positive link between churning in the range of imported and exported products, suggesting that the product mix of imported inputs may be an important, but less understood, margin of adjustment.