Exchange Rates and Export Behavior: Firm-level Evidence from Turkey * Nihan Nur Akhan † Bo˘ gazi¸ ci University Anıl D ¨ onmez ‡ Simon Fraser University Refik Erzan § Bo˘ gazi¸ ci University Tolga Umut Kuzubas ¸ ¶ Bo˘ gazi¸ ci University October 4, 2018 Abstract This paper investigates the heterogeneity in the responses of export volumes to real ex- change rate changes using firm-level data from Turkey for the period 2007-2014. We find that, consistent with the literature, high productivity firms were also large exporters and importers. Our results confirmed the positive effect of a depreciation on export volumes for Turkey, on average. However, firms with relatively high import intensities, measured as the ratio of imports to total trade at the firm-level, reacted significantly differently compared to low import intensity firms. Our empirical analysis suggested that for firms relying pre- dominantly on imported inputs, the positive effect of a depreciation could be offset by the corresponding negative effect through the cost channel and might even lead to a reduction in exports. Our results are consistent with the conventional belief that exchange rate depreci- ation benefits exporters, but this average effect might be misleading as it hides a significant amount of heterogeneity. Keywords: Exchange rates, export response, heterogenous firms JEL Classification: D31, I24, R20 * We would like to thank Murat Kırdar, Malik C ¸¨ ur¨ uk, and other faculty at the Department of Economics, Bo˘gazi¸ci University for their helpful comments and suggestions. Kuzubas acknowledges financial support from Tubitak grant number: 117K207. All errors are ours. † Address: Bo˘gazi¸ci University, Department of Economics, 34342 Bebek, Istanbul, Turkey. E-Mail: nihan.akhan@boun.edu.tr ‡ Address: Simon Fraser University, Department of Economics, Burnaby, B.C.Canada. E-Mail: adonmez@sfu.ca § Address: Bo˘gazi¸ci University, Department of Economics, 34342 Bebek, Istanbul, Turkey. E-Mail: erzan@boun.edu.tr ¶ Corresponding Author. Address: Bo˘gazi¸ci University, Department of Economics, 34342 Bebek, Istanbul, Turkey. E-Mail: umut.kuzubas@boun.edu.tr 1