The Impact of Real Exchange Movements on Firm Performance: An Empirical Study on Turkish Firms

The main purpose of this study is to examine the long term relationship between the real exchange rate, added value created by the firms, capital-labor ratio and firms’ domestic sales, exports, total sales and profitability for the 1993-2009 period by using econometric methods. The findings obtained in this study can be listed as follows: According to Durbin-Hausman Cointegration Test, there is a long-term relationship between variables. The results which obtained from the Common Correlated Effect (CCE) estimator indicate that an increase in the exchange rate has negative impact on exports and total sales, while an increase in added value created by the firms has positive effects on exports, domestic sales, total sales and profitability. Finally, it is observed that an increase in capital-labor ratio has positive effects on profitability.