Export Revenues and Exchange Rate: the Case of Russia

In this thesis, I explore how ‘import intensity’ of an industry affects the impact of exchange rate movements on its export revenues. Depreciation of a national currency not only decreases prices of domestic final goods in foreign countries, but also makes imported intermediate inputs used in the production more expensive which in turn negatively affects the export revenues. To illustrate this idea, I build a theoretical model and show that while the net effect of currency depreciation on export revenues is positive, it is weaker in industries that use imported intermediate inputs more intensively. Then, I investigate the link between exchange rate fluctuations and export revenues using input-output tables for Russian industries. The empirical results confirm the intuition developed in the model. In particular, I find that when the ruble depreciates by 10%, the increase in the marginal costs of production (caused by a rise in the prices of imported intermediate inputs) leads to the losses of the export revenues by 0.3% for the industry with the lowest import intensity and by 6.6% for the industry with the highest import intensity.