Manufacturing restructuring and the role of Real exchange rate shocks: A firm level analysis

A shortcoming of the empirical literature on the impact of real exchange rate (RER) uctuations on job reallocation and net em-ployment is a lack of detailed information on trade exposure, and thus on exposure to movements in the exchange rate. Recent con-tributions to the trade literature have shown that \u85rmsexposure to trade varies signi\u85cantly also at the industry level. In this paper we use detailed Norwegian \u85rm-level data on export and import expo-sure to provide a more accurate assessment of the adjustment to real exchange rate shocks. We treat the sharp real appreciation of the Norwegian Krone in the early 2000s as a natural experiment to iden-tify the response with respect to employment, productivity, and o¤-shoring. Using a di¤erence-in-di¤erence speci\u85cation, we \u85nd that the relative cost shock that hit the Norwegian economy led to a decline in more exposed \u85rmsemployment. But the RER shock also appears to have contributed to a process of manufacturing restructuring involv-ing o¤shoring of intermediate input production as well as \u85nal goods production that boosted \u85rmsproductivity