Import Intensity,Export Market Share And Incomplete Exchange Rate Pass-through

Exchange rate disconnect is one of “the six major puzzles” in international macroeconomics.On the base of heterogeneous firm trade theory and exchange rate passthrough theory,our paper merged the industrial enterprise database with the Chinese customs database to get the highly disaggregated firm-product-destination-year level data for the period of 2000-2006,estimated the level of export exchange rate pass-through(ERPT).Then,based on the fact that more than 60% of China's export enterprises will import at the same time,our paper constructed the indicator of import intensity and market share to comprehensively study how enterprise level import and export factors will influence export ERPT.Empirical results show that: the overall level of ERPT for Chinese exporters was extremely high,which suggests that the exchange rate is effective in the adjustment of the balance of payments;industry level of ERPT was different,which suggests the existence of inter-industry factors that can influence ERPT;import intensity and market share is different in merchandise level,and they are approximately subject to the Pareto distribution;exporters with higher import intensity or lower market share tend to show a lower level of ERPT;further research found that the influence of market share on export ERPT was asymmetric,that is to say only those with extremely low market share have a low level of ERPT,which explains why the overall level of China's export ERPT was very high although we had a large number of small or medium-sized exporters.To explain why import intensity(or import intermediate)can influence the export ERPT,our paper put forward the direct and indirect mechanism,which were all well performed in the additional test.Price of import intermediate was also influenced by exchange rate shocks,so firms using import inputs can “natural hedging” exchange rate risks,which induced exchange rate disconnect.The higher the import intensity the higher the influence.This is the direct mechanism.By the way,considering import intermediates usually have technical advantage compare with domestic intermediates,firms use import intermediates can improve in the productivity.The higher the productivity,the lower the ERPT.So,import intensity can influence the export ERPT by change enterprise productivity,which is the indirect mechanism.