Currency Crises And Export Behavior Of Foreign Affiliates

Abstract

This paper argues that following a currency crisis, foreign firms may increase their exports and reduce their local sales to mitigate the effect of the crisis. In so doing, foreign firms escape the effect of the crisis on local demand and capitalize on increased competitiveness due to currency devaluation and lower domestic input prices. Using data on sales by US majority owned affiliates in 41 countries spanning over 19 years, we show that US firms redirect their sales from domestic markets to exports. We also find that currency crises have a positive effect on developing countries merchandise exports.