The Effects Of RMB Exchange Rate Movements On Firm's Export Behaviors

Since the exchange rate reform in 2005,the RMB exchange rate has experienced a decade of appreciation cycle,and China still maintain a high trade surplus during this period.Exchange rate changes don't seem to adjust trade balance as traditional theory.Micro-level data availability has been improved recently,the studies based on the micro-level are inconsistent with the macro-level studies based on the national or industry level,and the latter ignore the heterogeneity between firms because of data aggregation,which leads to aggregation bias of the conclusions.This paper studies the impacts of exchange rate movements on firm's export behaviors using micro-level data based on the international vertical specialization perspective.This paper focuses on export behaviors,including pricing behavior,export destination conversion behavior,export product decision-making,export product quality decision-making and export competition mode.The main contents are as follows:Theoretical model section:The benchmark model of this paper introduces the vertical specialization into the production function,which is based on Chatterjee et al.(2013)model and analyzes the influence of the exchange rate change on the export pricing behavior,export destination conversion behavior,export product decision-making and moderating effect of vertical specialization.This paper introduces the product quality into the former model while studying the effect of exchange rate changes on the quality of export products and the moderating effect of vertical specialization.The expansion model assumes that the consumer is concerned about the quality of the adjusted price not the price,which is different from the benchmark model.The difference between the two model is that the former assumes that consumers care about product prices,while the latter assumes that consumers care about quality-adjusted prices.Empirical research section:Firstly,this paper studies the impact of exchange rate changes on export pricing behavior using Chinese firm-level data from the National Bureau of Statistics of China(NBSC)and Chinese customs data over the period of 2000-2006.The paper finds that RMB appreciation reduces firm's export prices;the paper decomposes the firm-level export price into the marginal cost and markup.RMB appreciation reduces the marginal cost and markup.The impact of RMB exchange rate movements on export prices mostly based on the mechanism of marginal cost rather than markup.Raising the level of vertical specialization increases the elasticity of the markup,marginal cost,and then export prices with respect to exchange rate movements.Secondly,this paper examines the impact of RMB exchange rate changes on the export relationship("firm-destination" level).The empirical results show that the appreciation of the RMB exchange rate reduces the probability of the entry of firm's export relationship and increases the probability of the exit of firm's export relationship.The increase in the level of vertical specialization will reduce the effects of the appreciation of the RMB exchange rate on firm's export relationship.Under controlling the influence of the vertical specialization(that is,controlling the influence of the imported intermediate goods),the effect of the exchange rate movement is heterogeneous.This paper finds that the higher the productivity,the smaller financing constraints,the foreign-funded firms,and the the smaller the impact of the appreciation of the RMB exchange rate on the entry and exit of export relations.Thirdly,This paper investigates the effect of RMB exchange rate movements on firm's export product decision.The empirical results show that the appreciation of the RMB exchange rate increases the probability of export product exit and reduces the probability of export product entry,thus reducing export product scope;The increase of vertical specialization will help to reduce the influence of RMB exchange rate movements;Under controlling the influence of vertical specialization,it shows that the impact of RMB exchange rate changes on the scope of export products will vary with TFP,ownership and the quality of export products.The impact of RMB exchange rate changes on the exit and entry of export products will also vary with core product,product quality and competition pattern.Finally,This paper investigates the effect of RMB exchange rate movements on firm's export product quality and export competition model.The empirical results show that the appreciation of the RMB exchange rate improves the firm-destination quality of export products and the increase of vertical specialization will help to enhance the positive impact of exchange rate movements.Under controlling the influence of vertical specialization,it shows that the impact of RMB exchange rate changes on the quality of export products will vary with firm's TFP,ownership,financing constraints as well as industry factor intensity and industry competition level.The higher TFP of the firm,the stronger the positive impact of the exchange rate on the quality of the exported products.Foreign-Owned and weak financing constraint firms or the firms who are in labor-intensive industries or more competitive industries will be affected in the same way.Empirical tests on the impact mechanism indicate that the influence of exchange rate changes on quality differentiated products is quite different and the impact of RMB exchange rate on the firm-destination quality of export products is achieved by encouraging firms to adjust quality differentiated products.Vertical specialization moderates the influence of exchange rate changes through cost effect,quality effect of imported intermediate inputs and species diversity effect of imported intermediate inputs.The appreciation of the RMB exchange rate also promote firms to adopt quality competition model and the impacts of RMB exchange rate changes on the export competition model of firm also have different characteristics at the firm level and industry level.Based on the above results,this paper puts forward some relevant policy suggestions,and then provides some enlightenments for the adjustment of exchange rate policy under the background of international vertical specialization.