Abstract:
Using the firm-level micro date from 2000 to 2007, we empirically investigate the relationship between the fluctuation of RMB and markup dispersion of Chinese manufacturing firms in order to analyze the effects of RMB fluctuation on resource allocation. The results show that the appreciation of RMB significantly reduce the markup dispersion within a narrowly defined industry, and both the appreciation of export exchange rate and import exchange rate increase the efficiency of resource allocation. And, the much of the RMB appreciation effect on markup dispersion stems from different markups among new exit/entry firms, rather than surviving firms. Moreover, the effect of RMB appreciation on markup dispersion is heterogeneous for firms with other different characteristics, including factor intensities, ownerships. Finally, we also find RMB appreciation significantly reduces the dispersion of firm price and firm productivity, suggesting the response of costs and prices to RMB appreciation.
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