Effect of Exchange Rate Volatility on Imports: Evidences from Chinese Firms

Yifan Li and Zhuang Miao

MPRA Paper from University Library of Munich, Germany

Abstract: The effect of exchange rate movement on trade has been studied widely for a long history. Most literatures focus on its impacts on firms' export performances, and the performances usually refer to the intensive and extensive margins of export. Adding to the existing studies, we explore how firms adjust their imports in response to varying levels of exchange rate volatility using Chinese customs data. Our contributions include three points: (i) we are the first one to test this issue using the Chinese firm level data; (ii) besides the intensive and extensive margins, we also detect how firms adjust the number of import varieties; and (iii) our study detects the role of financial constraints on the effect of the exchange rate risk. Our empirical estimations find that firms reduce their import value, varieties, and import probability from the origin country with relatively high level of exchange rate volatility. The last finding is different from the existing literature.

Keywords: Exchange Rate Volatility; Import Performance; Firm-level Evidences; China (search for similar items in EconPapers)
JEL-codes: F14 F31 (search for similar items in EconPapers)
Date: 2019-06-15
New Economics Papers: this item is included in nep-int and nep-tra
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