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Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports

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  • Willem Thorbecke

    (Asian Development Bank Institute)

Abstract

Many argue that the yuan needs to appreciate to rebalance the Peoples Republic of Chinas trade. However, empirical evidence on the effects of a CNY appreciation on the Peoples Republic of Chinas exports has been mixed for the largest category of exports, processed exports. Since much of the value-added of these goods comes from parts and components produced in Japan, the Republic of Korea, and other East Asian supply chain countries, it is important to control for exchange rate changes in these countries. Employing dynamic ordinary least squares, or DOLS, techniques and quarterly data, this paper finds that exchange rate appreciations across supply chain countries would cause a much larger drop in processed exports than a unilateral appreciation of the yuan.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 21989.

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Date of creation: Jan 2010
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Handle: RePEc:eab:financ:21989

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Keywords: China; exchange rate policy; exchange rate appreciations; trade;

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  1. THORBECKE, Willem, 2009. "Can East Asia be an Engine of Growth for the World Economy?," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 09006, Research Institute of Economy, Trade and Industry (RIETI).
  2. Sarah Y. Tong & Yi Zheng, 2008. "China's Trade Acceleration and the Deepening of an East Asian Regional Production Network," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(1), pages 66-81.
  3. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
  4. Fung, K. C. & Lau, Lawrence J., 2003. "Adjusted estimates of United States-China bilateral trade balances: 1995-2002," Journal of Asian Economics, Elsevier, Elsevier, vol. 14(3), pages 489-496, June.
  5. Kazunobu HAYAKAWA & Fukunari KIMURA, 2008. "The Effect of Exchange Rate Volatility on International Trade in East Asia," Working Papers, Economic Research Institute for ASEAN and East Asia (ERIA) d003, Economic Research Institute for ASEAN and East Asia (ERIA).
  6. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
  7. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal-Kesenci, 2005. "China’s Integration in East Asia: Production Sharing, FDI & High-Tech Trade," Working Papers 2005-09, CEPII research center.
  8. 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.
  9. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(1), pages 53-68, July.
  10. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2004. "The Impact of China on the Exports of Other Asian Countries," NBER Working Papers 10768, National Bureau of Economic Research, Inc.
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