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| RMB Exchange Rate, Trade Mode and Product Quality |
| WANG Yaqi, TAN Xiaofen, ZHANG Jinhui, LU Bing
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School of Finance, Central University of Finance and Economics;
School of Economics and Management, Tsinghua University;
PBC School of Finance, Tsinghua University |
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Abstract Based on the firm-level data and custom's transaction level data from 2000 to 2006, this paper investigates the impact of RMB real effective exchange rate movement on product quality of Chinese manufacturing enterprises. We find that the appreciation of RMB exchange rate will improve the average product quality. Quality improvement is significant for non-processing exporters but not for processing exporters. Besides, by dividing exporters into three categories-incumbents, entrants and dropouts, we find that the group of incumbents is the major contributor to the quality improvement. And we also note that firm's entry and exit play an important role in quality improvement. Finally, we find that against the backdrop of RMB exchange rate appreciation, the probability of market exit of products with lower quality is higher than that of products with higher quality. This effect is significant for non-processing exporters but not for processing exporters.
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Received: 19 July 2017
Published: 29 October 2018
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