Exchange rate volatility, financial constraints, and trade: empirical evidence from Chinese firms

Jerome Heericourt and Sandra Poncet ()
Authors registered in the RePEc Author Service: Jérôme Héricourt

No 6638, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies how firm-level export performance is affected by Real Exchange Rate (RER) volatility and investigates whether this effect depends on existing financial constraints. The empirical analysis relies on export data for more than 100,000 Chinese exporters over the 2000-6 period. The results confirm a trade-deterring effect of RER volatility. Firms'decision to begin exporting and the exported value decrease for destinations with higher exchange rate volatility; besides, this effect is magnified for financially vulnerable firms. As expected, financial development seems to dampen this negative impact, especially on the intensive margin of export. These results provide micro-founded evidence suggesting that the existence of well-developed financial markets allows firms to hedge exchange rate risk. The results also support a key role of financial constraints in determining the macro impact of RER volatility on real outcomes.

Keywords: Emerging Markets; Economic Conditions and Volatility; Currencies and Exchange Rates; Debt Markets; Fiscal&Monetary Policy (search for similar items in EconPapers)
Date: 2013-10-01
New Economics Papers: this item is included in nep-ifn, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Related works:
Journal Article: Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms (2015)
Working Paper: Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms (2015)
Working Paper: Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms (2015)
Working Paper: Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms (2015)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2013)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2013)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2013)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2013)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2012)
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