ABSTRACT
Using a unique data set of Chinese firm-product-destination level export on the period 2000–2013, this paper investigates the effect of real exchange rate changes on multi-product firms’ price setting decisions on export product with heterogeneous levels of quality. We find less exchange rate pass-through (ERPT) for higher-quality products. Meanwhile, the ERPT is higher when the Renminbi (RMB) appreciates than when it depreciates, and product quality has a greater effect on the ERPT during RMB depreciation. Furthermore, higher distribution costs lead to more pricing-to-market (PTM) and less pass-through. This heterogeneity in ERPT is also robust in different samples and econometric specifications. Combined with the existing studies on the effects of firm heterogeneity on the ERPT, our study helps piece together a more complete picture of the heterogeneity across firms in their reaction to export prices when the exchange rate changes.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Supplementary data
Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2023.2283778
Notes
1 Literature exploring firm-level characteristics and ERPT includes Berman et al. (Citation2012), Li et al. (Citation2015), and Xu et al. (Citation2016) on firm’s productivity; Strasser (Citation2013), and Chen et al. (Citation2022) on financial constrains; Amiti et al. (Citation2014) on market share; Bouvet et al. (Citation2017) on import content.
2 Martin and Mejean (Citation2014), Piveteau and Smagghue (Citation2019), and Jaimovich et al. (Citation2023) also apply the methodology of Khandelwal et al. (Citation2013).
3 All other interaction terms are included but not reported in this table.