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Rural-led exchange rate appreciation in China

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  • Menzies, Gordon
  • Xiao, Sylvia Xiaolin
  • Dixon, Peter
  • Peng, Xiujian
  • Rimmer, Maureen

Abstract

The departure of a factor in excess supply in a non-traded rural sector leads to a Rural-led Exchange Rate Real Appreciation (RERA), in a dual economy setup. The RERA highlights for the first time a potential link between intra-national factor movements and real exchange rates. In China, where there is excess labor employed in the production of (largely) non-traded rural goods, we attribute around one third of the recent appreciation of the real exchange rate – defined as the relative price of nontradables – to a RERA effect.

Suggested Citation

  • Menzies, Gordon & Xiao, Sylvia Xiaolin & Dixon, Peter & Peng, Xiujian & Rimmer, Maureen, 2016. "Rural-led exchange rate appreciation in China," China Economic Review, Elsevier, vol. 39(C), pages 15-30.
  • Handle: RePEc:eee:chieco:v:39:y:2016:i:c:p:15-30
    DOI: 10.1016/j.chieco.2016.03.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rates; Dual economy; Balassa–Samuelson Effect; China;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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