Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This paper examines how real exchange rate (RER) movements affects product innovation using a panel dataset of Chinese manufacturing firms. We construct a firm-specific effective RER to reflect each firm’s unique exposure to exchange rate shocks based on its composition of trading partners. Product innovation is measured by the share of new product sales in total sales (NPS), an indicator that reflects the successful commercialization of product innovation. Our main results report that RER appreciation reduces NPS. We further hypothesize that decreased profits from diminished exports, induced by RER appreciation, tighten financial constraints on developing new products. Empirical evidence supports this hypothesis: the negative effect of RER appreciation on NPS is more pronounced for financially constrained firms, specifically those with private ownerships, less fixed assets, a lower current ratio, a lower net liquidity ratio, or those located in cities with lower levels of financial development.