Importers, Exporters, and Exchange Rate Disconnect

Abstract

Large exporters are simultaneously large importers. In this paper, we show that this pattern is key to understanding low aggregate exchange rate pass-through as well as the variation in pass-through across exporters. First, we develop a theoretical framework that combines variable markups due to strategic complementarities and endogenous choice to import intermediate inputs. The model predicts that firms with high import shares and high market shares have low exchange rate pass-through. Second, we test and quantify the theoretical mechanisms using Belgian firm-product-level data with information on exports by destination and imports by source country. We confirm that import intensity and market share are the prime determinants of pass-through in the cross-section of firms. A small exporter with no imported inputs has a nearly complete pass-through, while a firm at the 95th percentile of both import intensity and market share distributions has a pass-through of just above 50%, with the marginal cost and markup channels playing roughly equal roles. The largest exporters are simultaneously highmarket-share and high-import-intensity firms, which helps explain the low aggregate pass-through and exchange rate disconnect observed in the data.

Quality, trade, and exchange rate pass-through

“…The large degree of pass-through we …nd for the wine industry is therefore consistent with the …ndings of other papers that use …rm-level data for the whole manufacturing sector. For instance, pass-through is estimated at 92 percent for French exporters (Berman et al, 2012), 94 percent for Chinese exporters (Li et al, 2012), 77 percent for Brazilian exporters (Chatterjee et al, 2013), 86 percent for Danish exporters (Fosse, 2012), and at 79 percent for Belgian exporters (Amiti et al, 2012).…”

“…The recent papers on heterogeneous pass-through typically de…ne a "product" according to trade classi…cations such as the Harmonized System or the Combined Nomenclature (e.g., Amiti et al, 2012;Auer and Chaney, 2009;Berman et al, 2012;Chatterjee et al, 2013). As Table 1 shows, the 6-digit HS classi…cation categorizes wines into four di¤erent categories according to whether they are sparkling or not, and to the capacity of the containers in which they are shipped (i.e., larger or smaller than two liters).…”

“…For earlier evidence from the perspective of exporters, see Goldberg and Knetter (1997), Kasa (1992), or Knetter (1989Knetter ( , 1993. For more recent evidence, see Berman, Martin, and Mayer (2012), Chatterjee, Dix-Carneiro, and Vichyanond (2013), or Amiti, Itskhoki, and Konings (2012), among others. 6 Other papers that focus on speci…c industries include Goldberg and Verboven (2001) and Auer, Chaney, and Sauré (2012) for the car industry, Hellerstein (2008) for beer, and Nakamura and Zerom (2010) for co¤ee.…”

“…Chatterjee et al (2013) focus on multi-product Brazilian exporters and show that within …rms, pricing-to-market is stronger for the products the …rm is most e¢cient at producing. Amiti, Itskhoki, and Konings (2012) …nd that Belgian exporters with high import shares and high export market shares have a lower exchange rate pass-through. 7 Our paper is also related to Auer and Chaney (2009) and Auer, Chaney, and Sauré (2012) who explore the relationship between quality and pass-through.…”

How do exchange rate movements affect Chinese exports? — A firm-level investigation

“…Most studies use aggregate data, which cannot separate the response of export price from that of volume. Moreover, although there is substantial heterogeneity across firms (Melitz, 2003), few studies have linked the exchange rate elasticity or ERPT to firm-level characteristics, with a few recent exceptions including Berman et al (2012, henceforth BMM), Chatterjee et al (2013), and Amiti et al (2014). Burstein and Gopinath (2014) provide the most up-to-date survey on the relationship between international prices and exchange rates.…”