The Effect of Exchange Rates on Firm Exports: The Role of Imported Intermediate Inputs

<heading format="display" id="h1" implicit="yes" level="1">Abstract</heading> In this paper we investigate the effect of exchange rate changes on the exports of UK manufacturing firms, but draw on the macro literature to consider the effects exchange rates have on imported intermediate inputs. Real exchange rate appreciations make the foreign export price of goods and services produced by domestic firms more expensive, but also make imported inputs cheaper. Our results provide support for this view; we find a significant negative effect from a measure of the export destination weighted real effective exchange rate and an offsetting effect from the imported intermediate input weighted exchange rate on export sales. Copyright 2010 Blackwell Publishing Ltd.