Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
This paper studies how firm-level export performance is affected by Real Exchange Rate (RER) volatility and investigates whether this effect depends on existing financial constraints. The empirical analysis relies on export data for more than 100,0...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/10/18347947/exchange-rate-volatility-financial-constraints-trade-empirical-evidence-chinese-firms http://hdl.handle.net/10986/16855 |
| Summary: | This paper studies how firm-level export
performance is affected by Real Exchange Rate (RER)
volatility and investigates whether this effect depends on
existing financial constraints. The empirical analysis
relies on export data for more than 100,000 Chinese
exporters over the 2000-6 period. The results confirm a
trade-deterring effect of RER volatility. Firms'
decision to begin exporting and the exported value decrease
for destinations with higher exchange rate volatility;
besides, 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. |
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