Exchange Rate Fluctuations and the Quality of Products Imported by Chinese Manufacturing Firms

ABSTRACT

Based on firm-level Chinese Customs and Industrial Production micro data for 2000–2013, this study investigates the impact of exchange rate fluctuations on the quality of products imported by Chinese manufacturing firms. The empirical results show that exchange rate appreciation upgrades the quality of imported products through the price effect, new product variety effect, and competitive effect channels, and by improving the quality of exported products. Our empirical results are robust after considering several potential problems. Furthermore, we find that the quality of products imported by firms with lower productivity, fewer financing constraints, non-core products, low market share, foreign-invested and private enterprises and countries with higher level of economic development upgrade more in respond to exchange rate appreciation. These results imply that exchange rate appreciation is an important way to encourage firms to upgrade the quality of imported products.

KEYWORDS:

• Exchange rate fluctuations
• quality of imported products
• product quality upgrade

JEL:

• F10
• F12
• F13

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed on the publisher’s website.

Notes

1. Please refer to the Supplementary Material available online in the Appendix A for the database and data processing.

2. Please refer to the Supplementary Material available online in the Appendix B for the measures of imported product quality and real effective exchange rate.

3. Please refer to the Supplementary Material available online in the Appendix C for the test on the heterogeneous effect of firms types and economic development.

4. Please refer to the Supplementary Material available online in the Appendix D for detailed robustness check.

Additional information

Funding

This paper is financial supported by National Natural Science Foundation of China Youth Program,“Research on Influence and Transmission Mechanism of RMB’s Volatility towards Voting of U.S. Exchange Rate and Trade Act” [project number: 71703005], the major project of the National Social Science Fund “The research of‘the Belt and Road’regional value chain construction and China’s industrial transformation and upgrading” [NO. 18ZDA039], Guangdong University of Foreign Studies high-level intramural talent project “The research of heterogeneous individual trade theory and policy”[NO. 299-GK19CQ85] and Guangdong University of Foreign Studies, a high-level talent project “The research of heterogeneous individual trade theory” [No. 312-GK19CQ79].