Exchange rate pass-through to export prices in China: does product quality matter?

Ting Chen, Wenjie Luo and Xunyong Xiang

Applied Economics, 2024, vol. 56, issue 56, 7454-7468

Abstract: Using a unique data set of Chinese firm-product-destination level export on the period 2000–2013, this paper investigates the effect of real exchange rate changes on multi-product firms’ price setting decisions on export product with heterogeneous levels of quality. We find less exchange rate pass-through (ERPT) for higher-quality products. Meanwhile, the ERPT is higher when the Renminbi (RMB) appreciates than when it depreciates, and product quality has a greater effect on the ERPT during RMB depreciation. Furthermore, higher distribution costs lead to more pricing-to-market (PTM) and less pass-through. This heterogeneity in ERPT is also robust in different samples and econometric specifications. Combined with the existing studies on the effects of firm heterogeneity on the ERPT, our study helps piece together a more complete picture of the heterogeneity across firms in their reaction to export prices when the exchange rate changes.

Date: 2024
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DOI: 10.1080/00036846.2023.2283778

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