Summary:
Exchange rate pass-through (ERPT) is a key mechanism in open economies, profoundly influencing firms' pricing behavior, international competitiveness, and macroeconomic stability. It has long drawn significant attention from both scholars and policymakers. Existing studies indicate that emerging economies generally face high levels of ERPT, with China being particularly notable with almost full pass-through. This implies that fluctuations in the RMB exchange rate are almost fully transmitted to foreign-currency export prices, leaving firms with limited pricing autonomy to buffer external shocks. In this context, while advancing RMB exchange rate marketization could enhance resource allocation efficiency, the persistently high pass-through rate intensifies concerns over the so-called “floating fear”, which means the risk of greater exchange rate flexibility may amplify macroeconomic volatility, thereby constraining deeper reform. As global value chains (GVCs) have become the dominant mode of international trade, accounting for approximately 60% of global trade, firms increasingly operate as both importers and exporters. Their structural position within GVCs has thus emerged as a critical determinant of pricing decisions. However, much of the existing literature reduces GVC position to a single export dimension, overlooking the joint role of dual positions (import and export) along the full “import-processing-export” chain. This simplification limits our understanding of firms' actual risk-mitigation strategies and leaves key questions unanswered: Under GVC-based production networks, how does the dual identity of firms as both exporters and importers affect their pricing responses to exchange rate fluctuations？ Do export and import positions operate through distinct mechanisms？ Addressing these questions not only deepens our understanding of micro-level pricing dynamics but also offers theoretical support for overcoming the impasse in exchange rate reform and achieving high-quality foreign trade development. To answer these questions, this paper extends the heterogeneous-firm pricing model of Berman et al. (2012) by incorporating the dual dimensions of GVC position including export upstreamness and import upstreamness, and develops a theoretical framework with testable hypotheses. The model predicts two distinct channels: First, higher export upstreamness enhances firms' market power and pricing flexibility through a market competition effect, enabling them to absorb exchange rate shocks more effectively and thereby reducing ERPT. Second, higher import upstreamness lowers cumulative trade costs through a cost-saving effect, expanding the margin within which firms can adjust prices, which also dampens ERPT. While both dimensions reduce pass-through, they operate through fundamentally different mechanisms. Empirically, we test these predictions using a rich, firm-product-destination-year panel dataset from Chinese customs for the period 2000-2016, covering 188,000 firms, 4,038 product categories, and 172 export markets. Our findings are as follows: First, the degree of ERPT from RMB exchange rate changes to export price denominated in forein currency is as high as 91% over the sample period, implying the effectiveness of the expenditure-switching effect. Second, moving up the GVC significantly reduces ERPT, but the marginal effect of export upstreamness is stronger than that of import upstreamness. When both export and import upstreamness are at the 95th percentile, ERPT declines to 79%. Third, mechanism tests support the theoretical predictions: Export upstreamness primarily affects pricing strategies directly through the market competition channel, while import upstreamness operates indirectly by expanding price adjustment space via the cost-saving channel. Fourth, heterogeneous analyses reveal that firms with a higher share of core products or lower cumulative trade costs exhibit greater pricing flexibility and lower ERPT in response to exchange rate fluctuations. This study makes three main contributions. First, it moves beyond the conventional unidimensional treatment of GVC position by decomposing it into dual dimensions—export and import upstreamness—and identifies two distinct transmission channels: the market competition effect and the cost-saving effect. Second, it quantifies the differential marginal effects of export and import positions, demonstrating the dominant role of export upstreamness in shaping pricing behavior. Third, it constructs a firm-level measure of cumulative trade costs, providing micro-level evidence for the amplification effect of GVC integration. From a policy perspective, this paper offers two key implications. First, GVC upgrading should be integrated into the broader strategy of RMB exchange rate marketization. As firms move upstream in GVCs, enhanced pricing power and optimized cost structures can reduce ERPT, thereby breaking the path dependency of “stabilizing the exchange rate to stabilize exports” and creating a favorable micro-foundation for further exchange rate liberalization. Second, high-quality foreign trade development should shift from scale expansion to structural upgrading. Policies should focus on fostering core technologies, enhancing the competitiveness of core products, and reducing trade barriers for intermediate goods, encouraging firms to transition from low-value contract manufacturing to high-pricing-power, low-pass-through autonomous models, thereby supporting China's evolution from a “trading giant” to a “trading power”. Future research could extend this analysis to regional value chains, exploring how GVC positioning within different regional production networks affects ERPT. Such work would provide more targeted policy insights for the international dimension of China's “dual-circulation” development strategy.
江春, 孙福伟, 刘赛红. 全球价值链位置如何影响出口价格汇率传递[J]. 金融研究, 2025, 543(9): 39-57.
JIANG Chun, SUN Fuwei, LIU Saihong. How Does A Firm's Position in the Global Value Chain Affect Exchange Rate Pass-Through to Export Prices?. Journal of Financial Research, 2025, 543(9): 39-57.
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