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Firm Dynamics In Retail Trade: The Response Of Canadian Retailers To Exchange Rate Shocks

Author

Listed:
  • Eugene Beaulieu

    (University of Calgary)

  • Jen Baggs

    (University of Victoria)

  • Beverly Lapham
  • Loretta Fung

    (National Tsing Hua University)

Abstract
We use comprehensive firm-level data to estimate the responses of heterogeneous Canadian retail firmsto 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 marginresponses in retail industries to real exchange rate shocks and to examine how those responses differacross 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 northe probability of firm survival. These findings are consistent with the view that a real Canadian dollarappreciation increases cross-border shopping by Canadians, resulting in a negative demand shock forCanadian retailers, and the dominant response by firms to such a shock is through the intensive margin.

Suggested Citation

  • Eugene Beaulieu & Jen Baggs & Beverly Lapham & Loretta Fung, 2015. "Firm Dynamics In Retail Trade: The Response Of Canadian Retailers To Exchange Rate Shocks," Working Paper 1349, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1349
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1349.pdf
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    References listed on IDEAS

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    Cited by:

    1. Richard Friberg & Frode Steen & Simen A. Ulsaker, 2022. "Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 408-438, May.
    2. Foellmi, Reto & Jäggi, Adrian & Schnell, Fabian, 2020. "Currency appreciation, distance to border and price changes: Evidence from Swiss retail prices," CEPR Discussion Papers 15019, C.E.P.R. Discussion Papers.
    3. Piera Bello, 2017. "Exchange rate fluctuations and border crossings: evidence from the Swiss-Italian border," IdEP Economic Papers 1701, USI Università della Svizzera italiana.
    4. Ariel Burstein & Sarah M. Lein & Jonathan Vogel, 2024. "Cross-Border Shopping: Evidence and Welfare Implications for Switzerland," NBER Working Papers 33006, National Bureau of Economic Research, Inc.
    5. Zhe Chen & Michael B. Devereux & Beverly Lapham, 2017. "The Canadian border and the US dollar: The impact of exchange rate changes on US retailers," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1525-1555, December.
    6. Thomas M. Fullerton & Adam G. Walke, 2019. "Cross-Border Shopping and Employment Patterns in the Southwestern United States," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-19, October.

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    More about this item

    Keywords

    Firm Dynamics; Retail Trade; Exchange Rates; Cross-Border Shopping;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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