Budget constraints and employment adjustments under exchange rate shocks

Date and time
Wednesday, 15 May 2019
15.00 - 16.00

Room E902

The Enterprise Evaluation and Applied Economics Cluster has organised a seminar series for Spring 2019, showcasing the research being undertaken by the Cluster, as part of the Centre for Business Improvement. The series brings together prominent economists to present their latest work in the field, and would be of interest to staff and students across the University.

We're delighted to welcome Professor Marian Rizov, Professor of Economics at University of Lincoln, as our fifth presenter.


Budget constraints and employment adjustments under exchange rate shocks: Evidence from Chinese domestic firms


We investigate the employment change differences between state-owned and private Chinese firms driven by the nature of the budget constraint that firms face, under exchange rate shocks. A soft budget-constraint arises whenever a lender finds it impossible to keep a borrower to a fixed budget which is typically the case for the state-owned firms in China. Data on Chinese manufacturing firms allow comparison of firm behaviour under soft and hard budget constraints as distinguished by firm ownerships. We find that private firms are more responsive to exchange rate shocks than state-owned firms, and industries with higher export orientation are more likely to have within-industry labour relocation between state-owned firms and private firms: when private firms shrink, state-owned firms expand employment and vice versa. Our results demonstrate the role of the soft budget constraint in labour adjustment of Chinese firms.

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