The“Steep Dropping and Slow Rising”Exchange Rate and Firm Existing Capacity: An Empirical Study Based on a“New Normal”for RMB and Firm Heterogeneity
Author(s): CHEN Xiao-shan, YUAN Shen-guo
Pages: 155-166
Year: 2016 Issue: 6
Journal: Journal of International Trade
Keyword: RMB Exchange Rate; Steep Dropping and Slow Rising; "New Normal"; Firm Existing Capacity; Firm Heterogeneity;
Abstract: The "steep dropping and slow rising" exchange rate becomes a"new normal"for RMB as China’s economic cycle turns. Confronted with such macro- environmental change, firms’ orders and prices of importing raw materials both suffer greatly. So, firms’ existing models also transform. This paper integrates the firm- specific micro- data and the exchange rate macro- data, based on the perspective of firm heterogeneity, to study the action mechanism of how do firms react to the slow rising RMB exchange rate during last economic cycle,hereby to analyze a "new normal" for RMB and micro- mechanism of firms’ behavior in the future. Our empirical analysis finds that: 1) the slow rising RMB exchange rate does bring different and significant shocks to firms’ existing capacity; 2) Firms located in coastal areas, firms owned by private sectors, capital and technology intensive firms and big size firms are all less affected by slow rising RMB exchange rate; 3) Inland firms, state-owned firms, labor and resource intensive firms, middle and small size firms are all shocked greatly.
Pages: 155-166
Year: 2016 Issue: 6
Journal: Journal of International Trade
Keyword: RMB Exchange Rate; Steep Dropping and Slow Rising; "New Normal"; Firm Existing Capacity; Firm Heterogeneity;
Abstract: The "steep dropping and slow rising" exchange rate becomes a"new normal"for RMB as China’s economic cycle turns. Confronted with such macro- environmental change, firms’ orders and prices of importing raw materials both suffer greatly. So, firms’ existing models also transform. This paper integrates the firm- specific micro- data and the exchange rate macro- data, based on the perspective of firm heterogeneity, to study the action mechanism of how do firms react to the slow rising RMB exchange rate during last economic cycle,hereby to analyze a "new normal" for RMB and micro- mechanism of firms’ behavior in the future. Our empirical analysis finds that: 1) the slow rising RMB exchange rate does bring different and significant shocks to firms’ existing capacity; 2) Firms located in coastal areas, firms owned by private sectors, capital and technology intensive firms and big size firms are all less affected by slow rising RMB exchange rate; 3) Inland firms, state-owned firms, labor and resource intensive firms, middle and small size firms are all shocked greatly.
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