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China's Changing Trade Elasticities

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  • Jahangir Aziz
  • Xiangming Li
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    Abstract

    China''s sectoral trade composition, product quality mix, and import content of processing exports have all changed substantially during the past decade. This has rendered trade elasticities estimated using aggregate data highly unstable, with more recent data pointing to significantly higher demand and price elasticities. Sectoral differences in these parameters are also very wide. All this suggests greater caution in using historical data to simulate the response of the China''s economy to external shocks and exchange rate changes. Analyses based on models whose estimated coefficients largely reflect the China of the 1980s and 1990s are likely to turn out to be wrong, perhaps even dramatically.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/266.

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    Length: 27
    Date of creation: 01 Nov 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/266

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    Related research

    Keywords: Trade; Exchange rates; standard error; equation; equations; statistic; probability; standard errors; standard deviation; import price; aggregate trade; imported inputs; cointegration; trade deficit; domestic demand; import tariffs; import demand; export price; trading partners; regional trade; bilateral trade; aggregate exports; exchange rate policies; external trade; samples; independent variables; import prices; trade structure; world economy; export growth; export supply; producer price index; trade data; increasing integration; export share; maximum likelihood estimator; statistics; trade reform; average tariffs; world markets; price of imports; domestic prices; world trade; economic liberalization; trade growth; trade liberalization; current account surplus; trade model; world exports; trade patterns; exchange rate movements; aggregate imports; intermediate inputs; econometrics; computation; current account balance; exchange rate policy; trade barriers; import quotas; export sector; foreign trade; trade restrictions; finite sample; trade policy reform; external shocks; import taxes; dummy variables;

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    References

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    1. Peter K. Schott, 2008. "The relative sophistication of Chinese exports," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 23, pages 5-49, 01.
    2. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-3, Federal Reserve Bank of Chicago.
    3. Cerra, Valerie & Saxena, Sweta Chaman, 2003. "How responsive is Chinese export supply to market signals?," China Economic Review, Elsevier, Elsevier, vol. 14(3), pages 350-370.
    4. Coudert, Virginie & Couharde, Cecile, 2007. "Real equilibrium exchange rate in China is the renminbi undervalued?," Journal of Asian Economics, Elsevier, Elsevier, vol. 18(4), pages 568-594, August.
    5. Nouriel Roubini, 2007. "Why China Should Abandon Its Dollar Peg," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 10(1), pages 71-89, 03.
    6. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    7. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 7(01), pages 1-21, March.
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    Cited by:
    1. Yuqing Xing, 2011. "Processing Trade, Exchange Rates and China’s bilateral Trade Balances," GRIPS Discussion Papers, National Graduate Institute for Policy Studies 10-30, National Graduate Institute for Policy Studies.
    2. Kumakura, Masanaga & Kuroko, Masato, 2007. "China's Impact on the Exports of Other Asian Countries: A Note," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 131, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    3. THORBECKE, Willem, 2008. "The Effect of Exchange Rate Volatility on Fragmentation in East Asia: Evidence from the Electronics Industry," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 08016, Research Institute of Economy, Trade and Industry (RIETI).
    4. Nagayasu, Jun, 2009. "Regional Inflation in China," MPRA Paper 24722, University Library of Munich, Germany.

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