Currency Appreciation, Product Reallocation, and Exporter Productivity

We examine how exchange-rate movements affect the productivity of exporting firms. Exploiting Chinas 2005 exchange rate regime reform as a quasi-natural experiment, we find that the resulting currency appreciation significantly increases exporters total factor productivity. We show that this effect arises from within-firm resource reallocation across products. Facing higher marginal costs in foreign currency, exporters shift resources toward better-performing products, which improves the composition of production and raises measured total factor productivity. Our findings highlight product reallocation as an important channel through which exchange-rate movements affect firm productivity.