 Exchange rate disconnect and financial constraints —evidence from Chinese firmsYuan Xu and Yuwei Guo Journal of Comparative Economics, 2021, vol. 49, issue 4, 1008-1019 Abstract: One puzzling observation in international economics is the lack of response of exports to exchange rate fluctuations. Employing the most comprehensive export data from China for the 2000–2007 period, we provide sector- and firm-level evidence that the response of exports to exchange rate movements depends crucially on the level of financial constraints. For sectors with large financial constraints, the response is small, whereas, for less financially constrained sectors, the response can be much larger, with the estimated elasticity decreasing with the sector's degree of financial constraints. At the firm-level, financial constraints affect the firm's response to exchange rate shocks at both the intensive and the extensive margins. At the intensive margin, financial constraints dampen the effect of exchange rate on exports by restricting the firm's export value to the existing destination market; at the extensive margin, financial constraints restrict the number of firms participating in exporting, the number of firm-product pairs being exported, and the probability of entering a new destination market. Keywords: Exchange rate elasticity; Financial constraints; Firm exports (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:49:y:2021:i:4:p:1008-1019 DOI: 10.1016/j.jce.2021.04.005 Access Statistics for this article Journal of Comparative Economics is currently edited by D. Berkowitz and G. Roland More articles in Journal of Comparative Economics from Elsevier |
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