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China's Changing Trade Elasticities

  • Jahangir Aziz
  • Xiangming Li
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    China's sectoral trade composition, product quality mix, and the 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 should be exercised when using historical data to simulate the response of China's economy to external shocks and exchange rate changes. Analyses based on models with estimated coefficients largely representative of China in the 1980s and 1990s are likely to turn out to be wrong, perhaps even dramatically. Copyright (c) 2008 The International Monetary Fund.

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    Article provided by Institute of World Economics and Politics, Chinese Academy of Social Sciences in its journal China & World Economy.

    Volume (Year): 16 (2008)
    Issue (Month): 3 ()
    Pages: 1-21

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    Handle: RePEc:bla:chinae:v:16:y:2008:i:3:p:1-21
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    1. Cerra, Valerie & Saxena, Sweta Chaman, 2003. "How responsive is Chinese export supply to market signals?," China Economic Review, Elsevier, vol. 14(3), pages 350-370.
    2. Nouriel Roubini, 2007. "Why China Should Abandon Its Dollar Peg," International Finance, Wiley Blackwell, vol. 10(1), pages 71-89, 03.
    3. Peter K. Schott, 2006. "The Relative Sophistication of Chinese Exports," NBER Working Papers 12173, National Bureau of Economic Research, Inc.
    4. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
    5. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
    6. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
    7. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
    8. Coudert, Virginie & Couharde, Cecile, 2007. "Real equilibrium exchange rate in China is the renminbi undervalued?," Journal of Asian Economics, Elsevier, vol. 18(4), pages 568-594, August.
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