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The effect of China's RMB exchange rate movement on its agricultural export: A case study of export to Japan

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  • Longjiang Chen
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    Abstract

    Purpose – The paper aims to examine the relationship between changes and volatility of China's Renminbi (RMB) exchange rates and its agricultural export. Design/methodology/approach – A GARCH(1, 1) model is specified to measure the exchange rate volatility and autoregressive distributed lag regression with structural break dummy variables is estimated based on the results of unit root test with structural break. Findings – The export supply model reveals that the net trade effect of RMB exchange rate movements relies on the comparison of exchange rate level change (appreciation or depreciation) effect and exchange rate risk effect. The empirical examination results, taking China's agricultural exports to Japan as a case, show RMB depreciation against yen will promote export growth while appreciation hinder export, and exchange rate volatility positively stimulates agricultural exports to Japan. However, the effect of exchange rate volatility on the export is much smaller than that of exchange rate level, which leads to a negative net effect to the export. Originality/value – The constructed model and applied methodology contribute to a better understanding of the relationship between changes and volatility of China's RMB exchange rates and its agricultural export.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

    Volume (Year): 3 (2011)
    Issue (Month): 1 (January)
    Pages: 26-41

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    Handle: RePEc:eme:caerpp:v:3:y:2010:i:1:26-41

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    Related research

    Keywords: Agriculture; China; Exchange rates; Exports; Japan;

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    References

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    1. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
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    12. Kawai, Masahiro, 1981. "The Behaviour of an Open-Economy Firm under Flexible Exchange Rates," Economica, London School of Economics and Political Science, vol. 48(189), pages 45-60, February.
    13. Robert Dekle & Hyeok Jeong & Heajin Ryoo, 2006. "A Re-examination of the Exchange Rate Disconnect Puzzle: Evidence from Japanese Firm Level Data," IEPR Working Papers 06.46, Institute of Economic Policy Research (IEPR).
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