Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks

32 Pages Posted: 6 Jul 2016

See all articles by Jen Baggs

Jen Baggs

Queen's School of Business

Eugene Beaulieu

University of Calgary - Department of Economics

Loretta Fung

National Tsing Hua University

Beverly J. Lapham

Queen's University

Date Written: August 2016

Abstract

We use comprehensive firm‐level data to estimate the responses of heterogeneous Canadian retail firms to real exchange rate movements. Our analysis focuses on a period characterized by large fluctuations in the Canadian dollar, providing an opportunity to quantify both intensive and extensive margin responses in retail industries to real exchange rate shocks and to examine how those responses differ across firms, locations, and sub‐industries. Our results indicate that a real Canadian currency appreciation significantly reduces a retailer's sales, employment, and profits. The strength of this negative effect is decreasing in the distance of a retailer from the US‐Canada border. We do not find evidence of a strong relationship between real exchange rate movements and the number of operating firms nor the probability of firm survival. These findings are consistent with the view that a real Canadian dollar appreciation increases cross‐border shopping by Canadians, resulting in a negative demand shock for Canadian retailers, and the dominant response by firms to such a shock is through the intensive margin.

Suggested Citation

Baggs, Jennifer and Beaulieu, Eugene and Fung, Loretta and Lapham, Beverly J., Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks (August 2016). Review of International Economics, Vol. 24, Issue 3, pp. 635-666, 2016, Available at SSRN: https://ssrn.com/abstract=2804829 or http://dx.doi.org/10.1111/roie.12229

Jennifer Baggs (Contact Author)

Queen's School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Eugene Beaulieu

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Loretta Fung

National Tsing Hua University ( email )

Hsinchu
Taiwan

Beverly J. Lapham

Queen's University ( email )

Kingston, Ontario K7L 3N6 K7L 3N6
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
167
PlumX Metrics