Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U.S.-Canada Border
Consumers living near the U.S.-Canada border can shift their expenditures between
the two countries, so real exchange rate fluctuations can act as demand shocks to border
areas’ retailers. Using annual county-level data, we estimate the effects of real exchange
rates on the number of establishments and their average employment in border counties
for four retail industries. In three of the four industries we consider, the number of
operating establishments responds either contemporaneously or with a lag of one year,
so “long-run” changes in net entry in fact occur quickly enough to matter for short-run
fluctuations.
