Access to finance and the exchange rate elasticity of exports

The recent empirical literature estimating the elasticity of exports to exchange rate fluctuations has shown that, while devaluations have in general a positive effect on exports, the size of it varies significantly depending on firm-specific characteristics. Using Chinese firm-level data, we show that exporting activities by more financially constrained firms are more sensitive to exchange rate changes than those by firms with a better ability to raise external capital. This finding is detected at both the intensive and extensive margin of exports. Consistent with the result on export volumes, we also document that the exchange rate pass-through to export prices denominated in the domestic currency is lower for firms facing stronger financial constraints. Moreover, we establish that the role of financial conditions in determining a differential effect of exchange rate on exports continues to be relevant when we allow for a variety of alternative features that may also affect the firm-level elasticity of exports to exchange rate. These are the intensity of use of imported inputs, labor productivity, the degree of price stickiness and firm size.