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Invoice Currency Choice in Intra-Firm Trade: A Transaction-Level Analysis of Japanese Automobile Exports

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Listed:
  • Taiyo Yoshimi
  • Uraku Yoshimoto
  • Kiyotaka Sato
  • Takatoshi Ito
  • Junko Shimizu
  • Yushi Yoshida

Abstract

This study empirically investigates how the invoice currency choice differs between intra-firm and arm’s-length exports. We also examine whether other firm- and product-level characteristics affect the choice of invoice currency. This study is the first to be granted access to highly disaggregated transaction-level trade data for Japan. Focusing on Japanese automobile exports to France, we demonstrate that the importer’s currency tends to be chosen in intra-firm export invoicing based on a panel logit estimation. Our empirical findings remain robust when different types of intra-firm export variables and other conventional explanatory variables are introduced, such as firm and product market share, exchange rate volatility, euro-invoiced imports, labor productivity, and research and development intensity. Given growing intra-firm trade and expanding global value chains, Japanese parent firms tend to invoice in the importers’ currency, assuming the foreign exchange risk that arises from intra-firm trade. Thus, exchange rate risk management is a significant consideration for Japanese parent firms.

Suggested Citation

  • Taiyo Yoshimi & Uraku Yoshimoto & Kiyotaka Sato & Takatoshi Ito & Junko Shimizu & Yushi Yoshida, 2024. "Invoice Currency Choice in Intra-Firm Trade: A Transaction-Level Analysis of Japanese Automobile Exports," NBER Working Papers 32142, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32142
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    References listed on IDEAS

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    1. Natalie Chen & Wanyu Chung & Dennis Novy, 2022. "Vehicle Currency Pricing and Exchange Rate Pass-Through," Journal of the European Economic Association, European Economic Association, vol. 20(1), pages 312-351.
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    9. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2022. "Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1435-1493.
    10. Neiman, Brent, 2010. "Stickiness, synchronization, and passthrough in intrafirm trade prices," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 295-308, April.
    11. Goldberg, Linda S. & Tille, Cédric, 2016. "Micro, macro, and strategic forces in international trade invoicing: Synthesis and novel patterns," Journal of International Economics, Elsevier, vol. 102(C), pages 173-187.
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    13. Devereux, Michael B. & Dong, Wei & Tomlin, Ben, 2017. "Importers and exporters in exchange rate pass-through and currency invoicing," Journal of International Economics, Elsevier, vol. 105(C), pages 187-204.
    14. Montfaucon, Angella Faith & Sato, Kiyotaka & Shrestha, Nagendra & Parsons, Craig, 2021. "Exchange rate pass-through and invoicing currency choice between fixed and floating exchange rate regimes: Evidence from Malawi’s transaction-level data," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 562-577.
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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