| Author/Presenter |
Jen Baggs (University of Victoria) |
| Co-authors |
Eugene Beaulieu (University of Calgary) |
| |
Loretta Fung (University of Alberta) |
| Title |
The Impact of Real Exchange Rate Movements on Services Sector Firms |
| Abstract |
There is a growing literature addressing the effect of the exchange rate on the survival and performance of manufacturing firms. With international trade in services expanding tremendously, the international environment is also becoming increasingly important to service sector firms. To date, however, the implications of the international economy for firms in the service sector are vastly understudied. This paper sets out to investigate this important, yet unexplored, issue. We analyze the effects of industry specific real exchange rate movements on the survival, entry, sales and profitability of Canadian service sector firms. We use firm level data from 1986 to 1997 combined with service trade data from 1990 to 2004. Our empirical results show that real appreciations of the Canadian dollar reduce firm probability of survival, sales and profitability while depreciations have the opposite effect. However, the exchange rate effect on entry rate is insignificant. This paper is among the first in the literature that analyze the impact of exchange rate movements on the behaviour of service firms. Overall, our findings suggest a significant effect on service firms, the direction of which is similar to that for manufacturing firms. |
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