- Regional Diferences

Despite many similarites with regard to their common history as Post-Soviet states, economic and politcal background and orientaton difer within our sample of countries especially between countries in Europe and Asia. We want to identfy whether a frms' export behaviour is afected diferently by our variables of interest depending on the locaton.

Therefore, in an additonal robustness check we split the sample in two parts. The frst part consists of countries that are located on the European contnent, the second of countries located in Asia. We reestmate model (III.3) on export intensity for both groups of countries. Estmaton results are presented in Table C.9. Coefcients for frm characteristcs, namely the natural logarithm of sales, the dummy variable controlling for quality certfcates and the number of

Year Dummies Yes Yes Yes Yes

Industry Dummies Yes Yes Yes Yes

Notes: Reported values are marginal efects at the mean of the independent variables; Robust standard errors in parentheses;

*** p<0.01, ** p<0.05, * p<0.1

employees in a frm, are positve and signifcant. The efect of quality certfcates on export intensity is higher for Central Asian frms and the number of employees has a stronger impact of European frms. The exchange rate variables show very partcular efects for both regions. While an exchange rate appreciaton yields positve but insignifcant estmates for Asian frms, coefcients are positve for European countries and signifcant when country dummies are included. Exchange rate volatlity yields always negatve but signifcant estmates for European frms and positve and mostly signifcant estmates for their Asian counterparts. Estmates for the number of signed RTAs is mostly positve, but insignifcant. Exchange rate agreements were only signed by European countries, thus there are no estmates for these variables for Asian frms.

The results indicate that the signifcant negatve estmates for the volatlity measure in the other models were driven by European frms in the sample. The same applies for movements in the exchange rate. Thus, the exchange rate appears to have very litle impact on export actvites for Asian frms. Possible reasons are manifold, ranging from a higher importance of other trade barriers such as tarifs, non-tarif barriers and transport costs to sufcient access to internal and external hedging instruments or a higher importance of regional trade that is less afected by exchange rate variatons of the domestc currency to the Euro.

III.IV - Conclusion

We fnd strong evidence for both the hypotheses tested in this paper: First, we fnd a clear negatve efect of exchange rate volatlity on a frms' probability to export and on their export intensity. Second, we fnd a signifcant positve impact of more binding currency agreements in the form of Euro or ERM II membership. The later we fnd to be robust for the extensive margin only.

Our results concerning exchange rate volatlity are in contrast to some of the previous empirical frm-level studies, but are more in line with country-level studies. Diferences in the outcome in comparison to earlier micro studies are probably due to diferences between observed countries, smaller average frm size in our sample compared to previous studies and slight diferences in methodology and variables in the estmated models. Robustness checks show that the signifcant negatve results for exchange rate volatlity are driven by frms located in Eastern Europe, while for frms in Central Asia other aspects rather than movements of or volatlity in the exchange rate to the Euro seem to determine export actvites. Furthermore, the efect of exchange rate volatlity can not be atributed to politcal instability that could be increasing volatlity of the domestc

56 III - Exchange Rate Policy and Exports of Firms

exchange rate to the Euro and thereby has an impact on a frms' export behaviour. The efects of Euro and ERM II on export intensity are smaller than the usual efect for Euro membership on export volume found in most recent macro studies.

It is very striking that positve efects of Euro and ERM II membership are larger and signifcant for sectors where long term investments play a huge role, such as machinery and equipment and manufacturing. A possible explanaton is that more binding currency agreements encourage investments in these sectors. While the impact of exchange rate volatlity on export behaviour is more signifcant for sectors providing services, currency agreements have a more pronounced and signifcant impact on industries producing goods. This could be atributed to the nature of contracts that are more short-term based for services and therefore are less afected by long term exchange rate agreements. For manufacturing exchange rate agreements are more important.

We also fnd evidence that frms do not lower the overall exposure to exchange rate risks from trade actvites when exchange rate volatlity is rising, but binding exchange rate arrangements, access to private credits and a higher share of foreign ownership lets them increase their exposure.

As argued in secton III.I.III, this could be due to frms taking out loans in foreign currencies due to lower costs of credits and intensifying export actvites to hedge for the exchange rate risks of the loans. The signifcant impact of private credits on exchange rate exposure due to importng and exportng actvites could indicate this.