New Exporters and Continuing Exporters under Exchange Rate Fluctuations

Yong Tan and Chen Zhao

MPRA Paper from University Library of Munich, Germany

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.

Keywords: New Exporters; Continuing Exporters; Exchange Rate Shocks; Pass-through (search for similar items in EconPapers)
JEL-codes: F14 F31 F33 O19 (search for similar items in EconPapers)
Date: 2017-03-02
New Economics Papers: this item is included in nep-int, nep-opm and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:77244

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