Strong dollar has little effect on small retailers, larger effect on wholesalers

A strong dollar (making imports cheaper and exporting more difficult) appears to have little effect on the survival rate of small retailers, according to a study released by the Office of Advocacy of the U.S. Small Business Administration. The study covers 15 years of data, from 1990 through 2005, from the U.S. Census Bureau’s Statistics of U.S. Businesses and other sources.

On the other hand, the study’s authors found that real exchange rate appreciation lead to increased rates of small firm exit in the wholesale sector. In wholesale firms with more than 10 employees, a 10 percent real dollar appreciation leads to a roughly 20 percent increase in firm closures. This finding suggests that wholesalers are closely tied to domestic manufacturers, and find it hard to switch suppliers to take advantage of falling import prices.

“For many people, the idea of currency exchange rates has no relevance other than how far their dollars will go while on vacation,” said Shawne McGibbon, Acting Chief Counsel for Advocacy. “But it is of vital importance to the owners and employees of small wholesalers. Policy makers should take these concerns into account when making decisions affecting the relative strength and weakness of the dollar,” she added.

Robert M. Feinberg wrote Effects of International Competition on Small Wholesale and Retail Trade Firms with funding from the Office of Advocacy.

For more information and a complete copy of the report, visit the Office of Advocacy web site at www.sba.gov/advo.