Exchange Rates and Export Structure

Abstract

This paper studies whether changes in the exchange rate affect a country’s export structure, using an arguably exogenous sudden appreciation of renminbi on July 21, 2005 as the main source of identification. Employing combined regression discontinuity and difference-in-differences approach, we show that China’s export structure became more similar to that of the developed countries after the currency appreciation. We also find that the majority of the appreciation effect comes from the inter-firm resource reallocation rather than the inter-region or intra-firm resource reallocation.

Keywords: export structure, currency appreciation, regression discontinuity design, difference-in-differences estimation, China’s exchange-rate reform, resource reallocation

JEL Classification: F31; F14; D22