Product Complexity, Exports, and Exchange Rates: Evidence from the Japanese Chemical Industry

Author Name Willem THORBECKE (Senior Fellow, RIETI) / Nimesh SALIKE (Xi'an Jiaotong-Liverpool University, Suzhou) / CHEN Chen (Xi'an Jiaotong-Liverpool University, Suzhou)
Creation Date/NO. November 2020 20-E-085
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We investigate how exchange rates affect the Japanese chemical industry. Focusing on exports in a single industry from a single country reduces the influence of other factors that could cloud inference. We find that stock returns of firms linked to commoditized industries decrease when the yen appreciates. Also, since more complex products are less substitutable in international trade, we investigate whether they have lower price elasticities. We measure complexity using Hausmann and Hidalgo's (2009) product complexity index. We find that price elasticities are lower for more complex goods. These results suggest that exporting sophisticated products could reduce export and profit volatility arising from exchange rate swings.