Exports, Real Exchange Rates and External Exposures: Empirical Evidence from Turkish Manufacturing Firms

Exports, Real Exchange Rates and External Exposures: Empirical Evidence from Turkish Manufacturing Firms

Title:

Exports, Real Exchange Rates and External Exposures: Empirical Evidence from Turkish Manufacturing Firms

Number:

16/24

Author(s):

Nazlı Toraganlı, Cihan Yalçın

Language:

English

Date:

November 2016

Abstract:

Turkish manufacturing firms are highly exposed to foreign currency (FX) denominated costs in the forms of liability dollarization and high imported input content in domestic production. This might limit the competitiveness effects of currency depreciation on exports. We attempt to uncover the relationship between the real exchange rates and exports of manufacturing firms in Turkey by taking account FX exposures and various firm characteristics. We use a large panel of manufacturing firms to carry out an empirical analysis for the period 2002-2010. We document that a real depreciation of the Turkish lira has a positive impact on export volumes and its impact is muted for manufacturing firms operating in sectors that use imported inputs intensively. That is, the cost of production channel seems to be effective in export performance of firms. In addition, we estimate that exports are less sensitive to real exchange rates for firms having moderate or low FX debt-to-export ratios (naturally hedged) and those are large and mature. Contrary to macro evidence, firm level findings suggest that a depreciation of Turkish lira seems to favor the external competitiveness of firms in general while for naturally hedged, large, mature, and high import intensity firms, the sensitivity is estimated to be smaller.

Keywords:

Exports, Real exchange rates, Currency mismatch, Firm characteristics

JEL Codes:

F23; F31; G15; G31; G32

Exports, Real Exchange Rates and External Exposures: Empirical Evidence from Turkish Manufacturing Firms
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