Exchange Rate Fluctuations and the Quality of Products Imported by Chinese Manufacturing Firms

Wei Jiang and Churen Sun

Emerging Markets Finance and Trade, 2022, vol. 58, issue 10, 2751-2763

Abstract: Based on firm-level Chinese Customs and Industrial Production micro data for 2000–2013, this study investigates the impact of exchange rate fluctuations on the quality of products imported by Chinese manufacturing firms. The empirical results show that exchange rate appreciation upgrades the quality of imported products through the price effect, new product variety effect, and competitive effect channels, and by improving the quality of exported products. Our empirical results are robust after considering several potential problems. Furthermore, we find that the quality of products imported by firms with lower productivity, fewer financing constraints, non-core products, low market share, foreign-invested and private enterprises and countries with higher level of economic development upgrade more in respond to exchange rate appreciation. These results imply that exchange rate appreciation is an important way to encourage firms to upgrade the quality of imported products.

Date: 2022
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DOI: 10.1080/1540496X.2021.2002140

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