Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms

Jérôme Héricourt and Sandra Poncet ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper, we study how firm-level export performance is affected by Real Exchange Rate (RER) volatility and investigate whether this effect depends on existing financial constraints. Our empirical analysis relies on export data for more than 100,000 Chinese exporters over the 2000-6 period. We confirm a trade-deterring effect of RER volatility. We find that firms' decision to begin exporting and the exported value decrease for destinations with a higher exchange rate volatility and that 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: China (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (48)

Published in World Bank Economic Review, 2015, First published online: October 24, 2013. ⟨10.1093/wber/lht035⟩

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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 (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 (2013)
Working Paper: Exchange Rate Volatility, Financial Constraints and Trade: Empirical Evidence from Chinese Firms (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01044989

DOI: 10.1093/wber/lht035

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