Financial constraints, exchange rate changes and export price: Evidence from Chinese exporters

Abstract

Focusing on firm heterogeneity and introducing financial constraints into the model of Berman et al. (2012), this paper analyses how financial constraints affect the exchange rate pass-through of exporters. Theoretically, the model shows that financially constrained firms have a higher exchange rate pass-through. Empirically, we use the Annual Survey of Industrial Firms and Chinese Customs Trade Statistics from 2000 to 2009 to examine the impact of financial constraints on the exchange rate pass-through at the micro level, and the results are consistent with theoretical expectations. This paper provides a micro-level explanation for the “lack of response of exports to exchange rate movements” phenomenon.