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How Would an Appreciation of the Yuan Affect the People’s Republic of China’s Surplus in Processing Trade?

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  • Willem Thorbecke

    (Asian Development Bank Institute)

Abstract

Enormous trade surpluses are problematic for the Peoples Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRCs imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRCs surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRCs trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.

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File URL: http://www.eaber.org/node/22823
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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22823.

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Date of creation: Jan 2010
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Handle: RePEc:eab:macroe:22823

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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Related research

Keywords: trade surpluses; China; exchange rates; yuan appreciation; factor market liberalisation;

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References

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  1. Yuqing Xing, 2010. "Consumption, Income Distribution, and State Ownership in the People’s Republic of China," GRIPS Discussion Papers 10-18, National Graduate Institute for Policy Studies.
  2. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  3. 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.
  4. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  5. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  6. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
  7. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  8. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  9. 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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