2015年-世界发展银行全球_Exchange_Rate_Volatility_Financial_Constraints_and_Trade___Empirical_Evidence_from_Chinese_Firms_29页_245kb

Summary of "Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms"

Core Content

This paper investigates the impact of Real Exchange Rate (RER) volatility on firm-level export performance and how this effect is influenced by financial constraints. The study uses firm-level data from over 100,000 Chinese exporters between 2000 and 2006 to analyze the relationship between RER volatility and trade outcomes.

Main Findings

• Trade-Deterring Effect of RER Volatility: RER volatility negatively affects firms' decisions to begin exporting and the value of exports. This effect is more pronounced for financially vulnerable firms.
• Financial Development Mitigates Negative Impact: Financially developed regions experience a weaker negative impact of RER volatility on export performance, especially on the intensive margin (volume of exports to existing markets).
• Micro-Founded Evidence: The results support the idea that well-developed financial markets allow firms to hedge against exchange rate risk, thereby reducing its adverse effects on trade.
• Financial Constraints Play a Key Role: The paper highlights that financial constraints are a critical determinant of how RER volatility influences trade outcomes at the macro level.

Key Mechanisms

• Variable Costs: Exchange rate volatility increases uncertainty in earnings, which can be seen as an increase in variable trade costs.
• Sunk Costs: Volatility may also raise the sunk costs of entering new markets, as firms face irreversible investment costs. This is particularly relevant for firms that rely heavily on external finance.
• Investment Irreversibility: The asymmetry in adjustment costs leads to investment irreversibility, making firms more hesitant to engage in exports when facing high volatility.
• Credit Constraints: Firms with limited access to external finance are more adversely affected by RER volatility, as they struggle to finance new investments or manage liquidity shocks.

Methodology and Data

• Data Sources: The study uses firm-level export data from the Chinese Customs, covering 113,368 firms and 158 destinations from 2000 to 2006.
• Exchange Rate Volatility Measure: Calculated as the yearly standard deviation of monthly log differences in the real exchange rate. The real exchange rate is derived from the nominal exchange rate and the partner country's CPI.
• Financial Vulnerability: Measured as the weighted average of sector-level financial vulnerability, based on the share of capital expenditures not funded by operating cash flows, intangible asset ratios, and R&D spending as a percentage of total sales.
• Financial Development: Assessed at the regional level using the ratio of total credit to GDP in the province.
• Empirical Specification: A regression model is used to estimate the impact of RER volatility on export performance, incorporating interactions between financial vulnerability, financial development, and RER volatility.

Robustness and Implications

• Robustness Checks: The findings are robust to different definitions of RER volatility, financial dependence, and trade margins.
• Endogeneity Control: The use of firm-destination fixed effects and time fixed effects helps address potential endogeneity issues.
• Policy Implications: The results suggest that financial development plays a crucial role in reducing the negative effects of RER volatility on trade. Policymakers in developing countries may benefit from enhancing financial systems to support firms in managing exchange rate risks.

Conclusion

The paper provides micro-level evidence that RER volatility negatively affects export performance, especially for financially constrained firms. It also emphasizes the importance of financial development in mitigating these effects, offering a clearer understanding of the macroeconomic implications of exchange rate volatility. The study contributes to the literature by highlighting the role of financial constraints in shaping the impact of RER volatility on trade and by using a large and detailed dataset from China to test these relationships.

Key Information

• Time Period: 2000–2006
• Country Focus: China
• Sample Size: Over 100,000 Chinese exporters
• Exchange Rate Policy: Yuan was pegged to the US dollar until 2005, then shifted to a basket of currencies
• Financial Vulnerability Measures:
  • Share of capital expenditures not funded by operating cash flows
  • Ratio of intangible assets to fixed assets
  • R&D spending as a percentage of total sales
• Financial Development Measure: Total credit to GDP at the provincial level
• Trade Margins Analyzed:
  • Intensive Margin: Volume of exports to existing markets
  • Extensive Margin: Decision to enter new markets

Theoretical Underpinnings

• The paper draws on theories of financial frictions and investment irreversibility.
• It connects the findings to previous macroeconomic studies, such as Aghion et al. (2009) and Aizenman and Marion (1999), which suggest that financial constraints amplify the negative effects of RER volatility.
• The study also references the work of Berthou and Fontagné (2013) on the impact of exchange rate changes on firm behavior.

Contribution to Literature

• Provides micro-founded evidence supporting the macroeconomic findings on the negative impact of RER volatility.
• Offers a novel approach by integrating firm-level financial vulnerability and financial development into the analysis of exchange rate effects on trade.
• Highlights the importance of financial systems in reducing the adverse effects of exchange rate volatility on export activities.