New Exporters and Continuing Exporters under Exchange Rate Fluctuations

Tan, Yong and Zhao, Chen (2017): New Exporters and Continuing Exporters under Exchange Rate Fluctuations.

Abstract

In this paper we investigate the different behaviors between new and continuing exporters in response to exchange rate shocks. We establish a dynamic model, in which new exporters strategically charge a lower price than continuing exporters in order to increase their current sales and accumulate their consumer base in future periods. The model predicts that new exporters adjust their price more aggressively relative to their continuing counterparts in response to exchange rate fluctuations in order to build future demand stock. Using a transaction-level dataset containing all Chinese exporters over the 2000-2009 period, we find supporting evidence for the model's predictions: new exporters adjust their price 1.5 times more than the continuing exporter. Our findings imply different exchange rate pass-through between new and continuing exporters, and the various ratios of new exporters lead to different degree of exchange rate pass-through across countries at the aggregate level.

• Item Type: MPRA Paper
• Language: English
• Keywords: New Exporters, Continuing Exporters, Exchange Rate Shocks, Pass-through
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development ; Role of International Organizations

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