This report studies the relationship between exchange rate fluctuations and investment. In an open economy such as Canada, variations in the value of the currency represent a potentially important factor behind investment decisions. Our results show that Canadian and Quebec exporters tend to reduce their investment activity following an appreciation of the Canadian dollar. Moreover, we document that in Canada, the most affected firms are those that export a larger share of their output. This supports our hypothesis that following an appreciation of the currency, the negative impact on the competitiveness of domestic firms outweighs the benefits through increased purchasing power.

Da Silva, L., Vincent, N., Taux de change, investissements et productivité, Centre for Productivity and Prosperity, HEC Montréal, March 2011. (Available in French only)