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Firm-specific exchange rate shocks and employment adjustment: Evidence from China

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  • Dai, Mi
  • Xu, Jianwei

Abstract

This paper examines how exchange rate shocks affect intra-industry labor reallocation across firms. Using comprehensive Chinese firm-level data, we examine the employment response to exchange rates of firms that are heterogeneous along two dimensions: external orientation and trading partner distribution. Firm-specific effective exchange rates are constructed to accurately measure exchange rate shocks pertinent to individual firms. We find that exchange rate movements induce significant labor reallocation across firms with different degrees of external orientation and with different trading partners. Trading partner distribution is as important as external orientation in explaining firms' heterogeneous employment response to exchange rates. Compared with effective exchange rate measures at more aggregate levels, using firm-specific effective exchange rates generates estimation results more consistent with theory and substantially increases the estimated impact of exchange rates on intra-industry job reallocation.

Suggested Citation

  • Dai, Mi & Xu, Jianwei, 2017. "Firm-specific exchange rate shocks and employment adjustment: Evidence from China," Journal of International Economics, Elsevier, vol. 108(C), pages 54-66.
    • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:54-66
    DOI: 10.1016/j.jinteco.2017.05.004
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    10. Dobbelaere, Sabien & Fuss, Catherine & Vancauteren, Mark, 2023. "Does Offshoring Shape Labor Market Imperfections? A Comparative Analysis of Belgian and Dutch Firms," IZA Discussion Papers 15962, Institute of Labor Economics (IZA).
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    16. Mao, R., 2018. "A Firm-Level Reappraisal of Real Exchange Rate Undervaluation in China s Agricultural Exports and Growth," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276987, International Association of Agricultural Economists.
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    More about this item

    Keywords

    Exchange rate; Labor reallocation; Export; Import;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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