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

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...

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Main Authors:	Héricourt, Jérôme, Poncet, Sandra
Format:	Journal Article
Language:	en_US
Published:	Published by Oxford University Press on behalf of the World Bank 2017
Subjects:	EXCHANGE RATES FINANCIAL DEVELOPMENT EXPORTS VOLATILITY
Online Access:	http://hdl.handle.net/10986/27687

id	okr-10986-27687
recordtype	oai_dc
spelling	okr-10986-276872021-04-23T14:04:46Z Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms Héricourt, Jérôme Poncet, Sandra EXCHANGE RATES FINANCIAL DEVELOPMENT EXPORTS VOLATILITY 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. 2017-08-09T19:39:43Z 2017-08-09T19:39:43Z 2015-09-29 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/27687 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Published by Oxford University Press on behalf of the World Bank Publications & Research :: Journal Article Publications & Research East Asia and Pacific China
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	EXCHANGE RATES FINANCIAL DEVELOPMENT EXPORTS VOLATILITY
spellingShingle	EXCHANGE RATES FINANCIAL DEVELOPMENT EXPORTS VOLATILITY Héricourt, Jérôme Poncet, Sandra Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
geographic_facet	East Asia and Pacific China
description	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.
format	Journal Article
author	Héricourt, Jérôme Poncet, Sandra
author_facet	Héricourt, Jérôme Poncet, Sandra
author_sort	Héricourt, Jérôme
title	Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
title_short	Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
title_full	Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
title_fullStr	Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
title_full_unstemmed	Exchange Rate Volatility, Financial Constraints, and Trade : Empirical Evidence from Chinese Firms
title_sort	exchange rate volatility, financial constraints, and trade : empirical evidence from chinese firms
publisher	Published by Oxford University Press on behalf of the World Bank
publishDate	2017
url	http://hdl.handle.net/10986/27687
_version_	1764465892562829312

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

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