Abstract
AbstractThis paper highlights the relationship between foreign exchange rate fluctuations and firms’ export market dynamics using a Chinese firm-level production data and a firm-level trade data over the period of 2000–2006. This study adopts a discrete-time survival model in our empirical investigation and further executes several extensions and robustness checks to the baseline results. The main results of the paper can be summarized as follows: First, an exchange rate appreciation increases the likelihood of export market exit and decreases the probability of export market entry. Second, high productivity firms are less likely to exit from export markets and more likely to enter export markets in the period of exchange rate appreciation. Third, exchange rate appreciation decreases the likelihood of export market entering and increases the likelihood of export market exiting more for private-owned firms, young firms and non-eastern firms. Finally, other sources of heterogeneity, such as extensive margins, import demand elasticity, different destinations, U.S. dollar peg, and the liberalization of trading rights is also important to the effects of exchange rate changes.
Highlights
It is well known that exchange rate is a significant institutional factor affecting aggregate trade and individual exporting behavior
In order to fill the gap of previous studies, this study investigates in this paper the relationship between foreign exchange rate fluctuations and firms’ export market dynamics using a firm-level production data from China National Bureau of Statistics and a firm-level trade data from China Customs over the period of 2000– 2006
Exchange rate appreciation decreases the likelihood of export market entering and increases the likelihood of export market exiting more for private-owned firms, young firms and non-eastern firms
Summary
It is well known that exchange rate is a significant institutional factor affecting aggregate trade and individual exporting behavior. A large and growing number of studies have shed light on the effect of foreign exchange rate fluctuations on export performance including export volume (the exchange rate elasticity of export quantity) and export price (exchange rate pass-through, ERPT) (Shambaugh, 2008; Colacelli, 2009).. A large and growing number of studies have shed light on the effect of foreign exchange rate fluctuations on export performance including export volume (the exchange rate elasticity of export quantity) and export price (exchange rate pass-through, ERPT) (Shambaugh, 2008; Colacelli, 2009).1 Another strand of literature highlights the relationship between exchange rate movements and extensive or intensive margin of trade on the product side (Bernard and Jensen, 2004a; Baggs et al, 2009). Very little attention is paid to the reaction of exporters to foreign exchange rate movements in terms of export market dynamics
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