Exchange Rate Appreciations and the Distribution of Productivity: Is Importing Inputs Sustainable for Emerging Countries?

Round 1

Reviewer 1 Report

This is an interesting topic to a broad audience. However, authors should carefully attend to the following important issues:

11.      Abstract needs to cursorily incorporate the study’s main recommendation.

22.      Some extant studies or reports should be cited to substantiate the background claims about resource allocation efficiency in the industry in the second paragraph of the introduction.

33.      Currently there are just a handful of literature cited on exchange studies mainly in China. A few more studies on exchange rate from other climes beyond China can be cited in the background motivations. For example, author can benefit from the following studies from different climes and more;

a.       https://doi.org/10.1016/j.jmoneco.2009.03.015

b.      https://doi.org/10.1108/JEAS-11-2020-0187

44.      The concluding remarks omits recommendations! Authors need to proffer some recommendations to stakeholders and policymakers based on the practical implications from this study. For instance, how does the monetary authority benefits from the findings?

5. The general presentation and technicality of writing is good, but the authors need to double-check the entire manuscript for typos and omissions. For instance, in section 7 line 459, authors write “When RMB exchange rate appreciation…”. I suppose they meant “When RMB exchange rate appreciate”. Also in line 468, “…. productivity may not sustainable”. I assumed they also meant to say “…productivity may not be sustainable”. Kindly make a general overhauling for clarity, coherence, and better readability.

Author Response

Thank you for your comments. We revise the paper according to the comments. The details are as follows:

11. In the abstract, we add the exchange rate decrease the resource allocation efficiency and aggregate productivity. China should tradeoff the gain of the productivity and the loss of the allocation efficiency when it determine to implement a more elastic RMB exchange rate regime.
12. we add several literature to claims about resource allocation.

Hsieh[1] find that if the resource allocation efficiency of China and India is same as that of America, the gain of manufaturing productivity would be 30%-50% in China and 40%-60% in India.

Yin[3] find that distortions in the factor market and the product market can both lead to resource misallocation, and the total factor productivity ( TFP) loss due to product market distortions is on average 40. 3%．

33. We add several literature about exchange rate volatility in the fifth paragraph.

According to Aghion[8], real exchange rate volatility could affect the productivity growth, and the effect depends on financial development. Yussif[9] use Ghana’s data to investigate the relationship between exchange rate volatility and international trade. The results showed that exchange rate volatility has a negative impact on export performances in Ghanaian economy, but has no significant positive effect on imports.

Cao[16] found the appreciations of RMB optimize the allocation of internal factors to avoid to be eliminated by the market competition and improve the TFP of firms.

55. We add some recommendations to policymakers.

Our results imply that when Chinese government evaluates the impact of the RMB apprieciations or monetary policies, they should pay more attention to the resource allocation effeciecy. Appreications have positive effect on productivity of firms in average, but have negative effects on industrial allocation efficiency espercially that import more intermediate inputs. As the trade conflict become more worsen, Chinese trade patterns may also change. According to our theorial framework, more effective monetary policy should make to help the firms and industries that be affected by trade conflicts according to their trade status.

5. We correct the sentences and double check. Thank you very much for these writing mistakes. And we double check the entire manuscript.

Reviewer 2 Report

The topic of the paper is quite relevant to the current development.

I want to point out a few concerns:

11.       Moderate English language correction is required.

22.      Plagiarism was found. So, write the sentences differently.

33.        The numbering of Heading is not correct. Such as:

                3. Data description, and 3. Regression analysis.

Check these formatting styles.

44.       The latest Reference is “2018”. Try to add a few latest References.

Author Response

Thanks for your comments.

11 and 22. I revise the sentence and correct some mistakes. Rewrite the sentences differently.

33. We correct these numbering of Heading.
34. We have added some latest literatures that related our research.

Cunningham, C.; Foster, L.; Grim, C.; Haltiwanger, J.; Pabilonia, S.W.; Stewart, J.; Wolf, Z. Dispersion in Dispersion: Measuring Establishment-Level Differences In Productivity. IZA Discussion Papers, No. 14459 2021.

Heng, Y.; Ziyao, Z. Product Market Distortions and Ｒesource Allocation Efficiency: A Heterogeneous Firm Markup Ｒate Perspective. Economic Research Journal 2021, 56, 119-137.

Yussif, A.B.; Onifade, S.T.; Ay, A.; Canitez, M.; Bekun, F.V. Modeling the volatility of exchange rate and international trade in Ghana: empirical evidence from GARCH and EGARCH. Journal of Economic and Administrative Sciences 2022.

Wei, C.; Yingjiao, F.; Chenyang, Y.; Die, W. RMB Exchange Rate Fluctuations, Enterprise Innovation and Total Factor Productivity of Manufacturing Industry. The Economic Research Journal 2022, 57, 65-82.