In the second of a series of interviews with economics researchers at the Royal Economic Society Conference 2007, Romesh Vaitilingam talks to Richard Kneller about the effect of exchange rate movements on UK exports.http://www.intute.ac.uk/socialsciences/blog/wp-content/files/kneller128.mp3%5D
Changes in exchange rates have little impact on UK manufacturing exports and are likely to have only a modest effect in reducing the country’s record trade deficit, according to research by Dr Richard Kneller and colleagues, presented to the Royal Economic Society’s 2007 annual conference at the University of Warwick.
Dr Kneller said:
‘The findings may surprise many people – intuitively you would expect a strong pound to be bad for exports and a weak pound to lead to much greater exports.’
‘But this research shows a different picture. It means that those concerned about the size of the trade deficit should not see a devaluation of sterling as a magic bullet solution to closing the gap. ‘
In the most comprehensive research of its kind carried out in the UK, the researchers analysed exchange rate movements and export patterns of over 23,000 UK manufacturing firms over a 17-year period from 1987 to 2004. They find that changes in exchange rates:
- make little difference to a firm’s decision to start or stop exporting;
- make no difference at all to the level of exports of multinational firms;
- and while making some difference to domestic UK firms, they have a modest impact on exports.