Export rivalry and exchange rate pass‐through

Abstract

In this paper, we investigate the influence of market rivalry on firm‐level exchange rate pass‐through. Similar to Bloom et al. Econometrica, 80, 1347–1393 (2013), we define market rivalry as product market proximity, and expect the cross market spillovers, that is, through leaked information or reputation, to affect firm‐level export price. Using a comprehensive dataset from Chinese exporters for the 2000–2007 period, we find that in response to a higher degree of market rivalry firms are less responsive to exchange fluctuations. This unresponsiveness suggests a higher degree of exchange rate pass‐through. The influence of market rivalry is stronger among firms that export consumption and heterogeneous products, and to developed countries. Our results are robust to different measures of market rivalry and specifications.