We investigate the causal effect of domestic currency appreciation on exporters’ total factor productivity. By exploiting the 2005 China’s exchange rate regime reform as a quasi-natural experiment, we find that domestic currency appreciation caused by the reform increases exporters’ total factor productivity. Specifically, given a fiercer competition induced by currency appreciation, exporters strategically reallocate resources towards better-performing products, which leads to higher total factor productivity.
JEL Codes: F14, F31