Exchange Rate Pass-Through and Importers’ Credit Constraints: Evidence from China

Abstract: This paper examines the patterns of exchange rate pass-through (ERPT) among Chinese importers and the role played by credit constraints in shaping the ERPT. Using highly dis-aggregated firm-product-country-level transaction data from 2000 to 2007, we find that (1) the average level of ERPT into import prices in China is around 73%; (2) for importers in financially more constrained sectors, ERPT tends to be more complete; (3) a higher degree of import sourcing diversity leads to a less complete pass-through and partially offsets the effects of credit constraints. Our findings demonstrate the significance of credit constraints in governing ERPT into import prices. Furthermore, a more diversified import sourcing network can enhance the ability of importers to cope with exchange rate shocks and help alleviate the impact of financial constraints on international trade.

[Publication]

DOI: 10.1016/j.jebo.2025.107044

Recommended citation: Li, Yao Amber and Lu, Lingfei and Zhao, Tengyu. "Exchange Rate Pass-Through and Importers’ Credit Constraints: Evidence from China." Journal of Economic Behavior and Organization 236 (2025), 107044.