How do Different Exporters React to Exchange Rate Changes?

This article analyzes the heterogeneous reaction of exporters to real exchange rate changes using a very rich French firm-level data set with destination-specific export values and volumes on the period 1995-2005. We find that high-performance firms react to a depreciation by increasing significantly more their markup and by increasing less their export volume. This heterogeneity in pricing-to-market is robust to different measures of performance, samples, and econometric specifications. It is consistent with models where the demand elasticity decreases with firm performance. Since aggregate exports are concentrated on high-productivity firms, precisely those that absorb more exchange rate movements in their markups, heterogeneous pricing-to-market may partly explain the weak impact of exchange rate movements on aggregate exports.