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Are Chinese Imports Sensitive To Exchange Rate Changes?

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Author Info

  • WILLEM THORBECKE

    ()
    (Research Institute of Economy, Trade and Industry, 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo, 100-8901, Japan)

  • GORDON SMITH

    ()
    (Anderson College, 316 Boulevard, Anderson, SC 29621, USA)

Abstract

Estimating the price elasticity of China's imports is difficult because many imports are used to produce exports and because the real effective exchange rate has remained fairly stable. To circumvent the first problem, we control for re-exports, and to increase the discriminatory power of the tests, we employ a panel data set including imports from 25 countries. The results indicate that a 10% RMB appreciation would increase imports for processing and ordinary imports by 3%–4%. As China climbs the value chain, the potential for import substitution and hence the import price elasticity should increase. Thus a renminbi appreciation should help to raise China's imports and rebalance its economy.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal China Economic Policy Review.

Volume (Year): 01 (2012)
Issue (Month): 02 ()
Pages: 1250012-1-1250012-15

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Handle: RePEc:wsi:ceprxx:v:01:y:2012:i:02:p:1250012-1-1250012-15

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Keywords: Exchange rate elasticities; China; F32; F41;

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References

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  1. Koichiro Kamada & Izumi Takagawa, 2005. "Policy coordination in East Asia and across the Pacific," International Economics and Economic Policy, Springer, vol. 2(4), pages 275-306, December.
  2. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal, 2011. "China's Foreign Trade in the Perspective of a More Balanced Economic Growth," Working Papers 2011-03, CEPII research center.
  3. Thorbecke, Willem, 2011. "Investigating the effect of exchange rate changes on china's processed exports," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 33-46, June.
  4. Wagner, Martin & Hlouskova, Jaroslava, 2007. "The Performance of Panel Cointegration Methods. Results from a Large Scale Simulation Study," Economics Series 210, Institute for Advanced Studies.
  5. Willem Thorbecke & Gordon Smith, 2010. "How Would an Appreciation of the Renminbi and Other East Asian Currencies Affect China's Exports?," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 95-108, 02.
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Cited by:
  1. Nishimura, Yusaku & Hirayama, Kenjiro, 2013. "Does exchange rate volatility deter Japan-China trade? Evidence from pre- and post-exchange rate reform in China," Japan and the World Economy, Elsevier, vol. 25, pages 90-101.

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