Abstract
A significant proportion of international trade is in intermediate goods. This paper considers theoretically and empirically how exporters' dependence on imported inputs affects their choice of invoicing currency. The model predicts that exporters that depend more on foreign currency-denominated inputs are less likely to price in their home currency. I test this and other theoretical results using a novel dataset that covers UK trade transactions with non-EU countries. I find considerable support for the model's predictions. A 10 percentage point higher share of foreign currency-denominated inputs is associated with a 20 percentage point higher probability of pricing in the same foreign currency relative to the producer's currency.
Original language | English |
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Pages (from-to) | 237-250 |
Number of pages | 14 |
Journal | Journal of International Economics |
Volume | 99 |
Early online date | 14 Nov 2015 |
DOIs | |
Publication status | Published - Mar 2016 |
Keywords
- Currency of invoicing
- Imported inputs
- UK trade