The Impact Of Exchange Rate Undervaluation On China’s Agricultural Exports

Based on the controversy of China’s exchange rate policy and the importance of agricultural exports to China’s agricultural development,this paper focuses on the impact of exchange rate undervaluation on agricultural exports.To mitigate the effects of endogenous and reverse causality on outcomes,this paper uses underestimation of data at the enterprise level.Matching firm-and country-level data with a panel dataset of China’s agricultural exports at the firm-product-country-level,a measure of firm-level exposure to exchange rate undervaluation has been proposed based on estimates of the bilateral undervaluation of yuan versus other currencies.Empirical models find that a firm’s^agricultural exports significantly and positively increase with its exposure to undervaluation.The result remains robust to alternative sample selections,measurement choices,and model specifications.The elasticity,however,differs across firms for their productivity,financial constraint,ownership,trade mode,and subsidy status.Our empirical research shows that in enterprises with low levels of productivity,processing trade,subsidies,and major export products for processing agricultural products,the underestimation of the export of agricultural products by enterprises is underestimated.At the end of the article,based on the empirical results,we summarize the impact of the undervalued exchange rate on the export of agricultural products at the enterprise level,and put forward the view that China should adopt a more flexible exchange rate policy.