Exchange Rates and Exports: Evidence from Manufacturing Firms in the UK

Our focus is the effects of exchange rate movements on firm decisions on export market entry and exit and export intensity. The analysis breaks down export adjustments between changes in export share by existing exporters and changes due to entry to and exit from export markets. Using data on a large sample of UK manufacturing firms, we find that exchange rate movements have little effect on firm's export participation and exit decisions. However, they do have a significant impact on export shares after entry. The responsiveness of the export share to exchange rate changes is not quantitatively small: one index point depreciation in the REER index will increase export share by about 1.28 percent. We also investigate the effects of exchange rate movements on the export behavior of multinationals, and find their export behavior is less likely to be affected by exchange rate changes than that of indigenous firms.