IDEAS home Printed from https://ideas.repec.org/p/ags/iaae18/276987.html
   My bibliography  Save this paper

A Firm-Level Reappraisal of Real Exchange Rate Undervaluation in China s Agricultural Exports and Growth

Author

Listed:
  • Mao, R.

Abstract

Matching firm- and country-level data with a panel dataset of China s agricultural exports at the firm-product-country-level, a measure of firm-level exposure to exchange rate undervaluation has been proposed based on estimates of the bilateral undervaluation of yuan versus other currencies. Empirical models find that a firm s agricultural exports significantly and positively increase with its exposure to undervaluation. The result remains robust to alternative sample selections, measurement choices, and model specifications. The elasticity, however, differs across firms for their productivity, financial constraint, ownership, trade mode, and subsidy status. With the mediation role of increased exports, the undervaluation exposure further accelerates the firm-level growth in both productivity and scale according to the path analysis. This mediation effect takes almost a half of the acceleration effect of undervaluation on labor productivity and employment growth. It takes even the entire effect as to the growth of total factor productivity, sales, value added, and capital stock. Acknowledgement :

Suggested Citation

  • 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.
    • Handle: RePEc:ags:iaae18:276987
    DOI: 10.22004/ag.econ.276987
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/276987/files/484.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.276987?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    2. Guariglia, Alessandra & Liu, Xiaoxuan & Song, Lina, 2011. "Internal finance and growth: Microeconometric evidence on Chinese firms," Journal of Development Economics, Elsevier, vol. 96(1), pages 79-94, September.
    3. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    4. Nucci, Francesco & Pozzolo, Alberto Franco, 2010. "The exchange rate, employment and hours: What firm-level data say," Journal of International Economics, Elsevier, vol. 82(2), pages 112-123, November.
    5. Cheung, Yin-Wong & Chinn, Menzie David & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Department of Economics, Working Paper Series qt12z9x4c5, Department of Economics, UC Santa Cruz.
    6. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 437-492.
    7. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the J-curve revisited," Discussion Paper / Institute for Empirical Macroeconomics 65, Federal Reserve Bank of Minneapolis.
    8. Robert G. Chambers & Richard E. Just, 1979. "A Critique of Exchange Rate Treatment in Agricultural Trade Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(2), pages 249-257.
    9. Nouira, Ridha & Sekkat, Khalid, 2012. "Desperately seeking the positive impact of undervaluation on growth," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 537-552.
    10. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.
    11. Albert Park & Dean Yang & Xinzheng Shi & Yuan Jiang, 2010. "Exporting and Firm Performance: Chinese Exporters and the Asian Financial Crisis," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 822-842, November.
    12. Whited, Toni M, 1992. "Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    13. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 153-230.
    14. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
    15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    16. Pick, Daniel H & Vollrath, Thomas L, 1994. "Real Exchange Rate Misalignment and Agricultural Export Performance in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 42(3), pages 555-571, April.
    17. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    18. 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.
    19. Arpita Chatterjee & Rafael Dix-Carneiro & Jade Vichyanond, 2013. "Multi-product Firms and Exchange Rate Fluctuations," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 77-110, May.
    20. Huang, Jikun & Jun, Yang & Xu, Zhigang & Rozelle, Scott & Li, Ninghui, 2007. "Agricultural trade liberalization and poverty in China," China Economic Review, Elsevier, vol. 18(3), pages 244-265.
    21. Frank Fuller & John Beghin & Stéphane De Cara & Jacinto Fabiosa & Cheng Fang & Holger Matthey, 2003. "China's Accession to the World Trade Organization: What Is at Stake for Agricultural Markets?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 399-414.
    22. Armen Hovakimian & Gayané Hovakimian, 2009. "Cash Flow Sensitivity of Investment," European Financial Management, European Financial Management Association, vol. 15(1), pages 47-65, January.
    23. Guariglia, Alessandra, 2008. "Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1795-1809, September.
    24. Xufei Zhang & Xiaoxuan Liu, 2012. "How Responsive are Chinese Exports to Exchange Rate Changes? Evidence from Firm-level Data," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1489-1504, October.
    25. Joan Farre-Mensa & Alexander Ljungqvist, 2016. "Do Measures of Financial Constraints Measure Financial Constraints?," The Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 271-308.
    26. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    27. Nouira, Ridha & Plane, Patrick & Sekkat, Khalid, 2011. "Exchange rate undervaluation and manufactured exports: A deliberate strategy?," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 584-601.
    28. Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
    29. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    30. Patrick PLANE & Ridha NOUIRA & SEKKAT, 2010. "Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy?," Working Papers 201010, CERDI.
    31. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    32. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    33. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
    34. Chen, Shiu-Sheng, 2017. "Exchange rate undervaluation and R&D activity," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 148-160.
    35. XING, Yuqing, 2006. "Why is China so attractive for FDI? The role of exchange rates," China Economic Review, Elsevier, vol. 17(2), pages 198-209.
    36. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    37. Nucci, Francesco & Pozzolo, Alberto F., 2001. "Investment and the exchange rate: An analysis with firm-level panel data," European Economic Review, Elsevier, vol. 45(2), pages 259-283, February.
    38. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    39. Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.
    40. Robert C. Feenstra & Gordon H. Hanson, 2004. "Intermediaries in Entrepôt Trade: Hong Kong Re‐Exports of Chinese Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 3-35, March.
    41. Himarios, Daniel, 1985. "The effects of devaluation on the trade balance: A critical view and re- examination of Mile's `new results'," Journal of International Money and Finance, Elsevier, vol. 4(4), pages 553-563, December.
    42. Dai, Mi & Maitra, Madhura & Yu, Miaojie, 2016. "Unexceptional exporter performance in China? The role of processing trade," Journal of Development Economics, Elsevier, vol. 121(C), pages 177-189.
    43. Arvind Subramanian, 2010. "New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications," Policy Briefs PB10-8, Peterson Institute for International Economics.
    44. Dani Rodrik, 2010. "Making Room for China in the World Economy," American Economic Review, American Economic Association, vol. 100(2), pages 89-93, May.
    45. Cull, Robert & Xu, Lixin Colin & Zhu, Tian, 2009. "Formal finance and trade credit during China's transition," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 173-192, April.
    46. Nicolas Berman & Antoine Berthou, 2009. "Financial Market Imperfections and the Impact of Exchange Rate Movements on Exports," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 103-120, February.
    47. Brissimis, Sophocles N. & Leventakis, John A., 1989. "The effectiveness of devaluation: A general equilibrium assessment with reference to Greece," Journal of Policy Modeling, Elsevier, vol. 11(2), pages 247-271.
    48. Guedae Cho & Ian M. Sheldon & Steve McCorriston, 2002. "Exchange Rate Uncertainty and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 931-942.
    49. Gary W. Williams & Ji Luo, 2015. "Exchange Rate Policy and Global Supply Chains: The Case of the Chinese Renminbi and Global Soybean and Soybean Product Markets," Reports 285207, Texas A&M University, Agribusiness, Food, and Consumer Economics Research Center.
    50. Cottani, Joaquin A & Cavallo, Domingo F & Khan, M Shahbaz, 1990. "Real Exchange Rate Behavior and Economic Performance in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 61-76, October.
    51. Eichengreen, Barry & Tong, Hui, 2015. "Effects of renminbi appreciation on foreign firms: The role of processing exports," Journal of Development Economics, Elsevier, vol. 116(C), pages 146-157.
    52. Jen Baggs & Eugene Beaulieu & Loretta Fung, 2009. "Firm survival, performance, and the exchange rate," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 393-421, May.
    53. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August.
    54. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.
    55. Sourafel Girma & Yundan Gong & Holger Görg & Zhihong Yu, 2009. "Can Production Subsidies Explain China's Export Performance? Evidence from Firm‐level Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 863-891, December.
    56. Gayané Hovakimian, 2009. "Determinants of Investment Cash Flow Sensitivity," Financial Management, Financial Management Association International, vol. 38(1), pages 161-183, March.
    57. Dani Rodrik, 2013. "Unconditional Convergence in Manufacturing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 165-204.
    58. Easterly, William, 2001. "The Lost Decades: Developing Countries' Stagnation in Spite of Policy Reform 1980-1998," Journal of Economic Growth, Springer, vol. 6(2), pages 135-157, June.
    59. Miles, Marc A, 1979. "The Effects of Devaluation on the Trade Balance and the Balance of Payments: Some New Results," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 600-620, June.
    60. G. Edward Schuh, 1974. "The Exchange Rate and U. S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(1), pages 1-13.
    61. Ghura, Dhaneshwar & Grennes, Thomas J., 1993. "The real exchange rate and macroeconomic performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 42(1), pages 155-174, October.
    62. Glüzmann, Pablo Alfredo & Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2012. "Exchange rate undervaluation and economic growth: Díaz Alejandro (1965) revisited," Economics Letters, Elsevier, vol. 117(3), pages 666-672.
    63. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    64. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    65. Ma, Hong & Wang, Zhi & Zhu, Kunfu, 2015. "Domestic content in China’s exports and its distribution by firm ownership," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 3-18.
    66. Anne O. Krueger, 1978. "Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences," NBER Books, National Bureau of Economic Research, Inc, number krue78-1.
    67. Danny Leung & Terence Yuen, 2010. "Do exchange rates affect the capital-labour ratio? Panel evidence from Canadian manufacturing industries," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2519-2535.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Minjia & Guariglia, Alessandra, 2013. "Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1123-1140.
    2. Yu, Ziliang & Tong, Jiadong, 2020. "Financing benefit from exporting: An indirect identification approach," Journal of Multinational Financial Management, Elsevier, vol. 57.
    3. Ding, Sai & Kim, Minjoo & Zhang, Xiao, 2018. "Do firms care about investment opportunities? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 214-237.
    4. Dongyang Zhang, 2017. "Is working capital management value-enhancing through alleviating financial constraints? Evidence from Chinese non-listed firms," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(4), pages 373-406, October.
    5. Nouira, Ridha & Sekkat, Khalid, 2012. "Desperately seeking the positive impact of undervaluation on growth," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 537-552.
    6. Dai, Mi & Nucci, Francesco & Pozzolo, Alberto F. & Xu, Jianwei, 2021. "Access to finance and the exchange rate elasticity of exports," Journal of International Money and Finance, Elsevier, vol. 115(C).
    7. Sai Ding & Alessandra Guariglia & John Knight & Junhong Yang, 2021. "Negative Investment in China: Financing Constraints and Restructuring versus Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 69(4), pages 1411-1449.
    8. Ding, Sai & Guariglia, Alessandra & Knight, John, 2013. "Investment and financing constraints in China: Does working capital management make a difference?," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1490-1507.
    9. Hu, Cui & Parsley, David & Tan, Yong, 2021. "Exchange rate induced export quality upgrading: A firm-level perspective," Economic Modelling, Elsevier, vol. 98(C), pages 336-348.
    10. Amor, Thouraya Hadj & Nouira, Ridha & Rault, Christophe & Sova, Anamaria Diana, 2023. "Real exchange rate misalignments and economic growth in Tunisia: New evidence from a threshold analysis of asymmetric adjustments," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 215-227.
    11. Zhang, Teng & Ouyang, Puman, 2018. "Is RMB appreciation a nightmare for the Chinese firms? An analysis on firm profitability and exchange rate," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 27-43.
    12. Li, Jie & Lan, Liping & Ouyang, Zhigang, 2020. "Credit constraints, currency depreciation and international trade," Journal of International Money and Finance, Elsevier, vol. 104(C).
    13. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    14. Guariglia, Alessandra & Liu, Xiaoxuan & Song, Lina, 2011. "Internal finance and growth: Microeconometric evidence on Chinese firms," Journal of Development Economics, Elsevier, vol. 96(1), pages 79-94, September.
    15. Vijayakumaran, Ratnam, 2021. "Impact of managerial ownership on investment and liquidity constraints: Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 55(C).
    16. Mao, Qilin & Sheng, Bin, 2017. "The impact of tariff reductions on firm dynamics and productivity in China: Does market-oriented transition matter?," China Economic Review, Elsevier, vol. 45(C), pages 168-194.
    17. Firth, Michael & Malatesta, Paul H. & Xin, Qingquan & Xu, Liping, 2012. "Corporate investment, government control, and financing channels: Evidence from China's Listed Companies," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 433-450.
    18. Bo Gao & Jing Ma & Zheng Wang, 2021. "The employment and wage effects of export VAT rebates: evidence from China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 347-373, May.
    19. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," CERDI Working papers halshs-00761380, HAL.
    20. Zhou, Tianhang & Li, Xue & Yan, Guo & Li, Jie, 2022. "How productivity and credit constraints affect exports differently? Firm-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 207-230.

    More about this item

    Keywords

    Financial Economics;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:iaae18:276987. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.