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The impact of the Chinese exchange policy on foreign trade with the European Union

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  • Ana Cardoso
  • António Portugal Duarte

Abstract

The aim of this paper is to analyze the impact of the Chinese foreign exchange policy on foreign trade with the European Union. After describing the importance of the exchange rate in an open economy and some of the methodologies employed to calculate its equilibrium value, we examine whether the Chinese competitiveness is due to the existence of misalignment (undervaluation) of its exchange rate, or rather, to other sources of competitiveness. For this purpose, we use a Vector Error Correction (VEC) model to estimate a long-run exports equation. The empirical results indicate that over the past few years, Chinese exports have benefited from an ‘unfair’ competitive advantage resulting from the manipulation of its currency value. JEL Classification: C39; F10; O24.

Suggested Citation

  • Ana Cardoso & António Portugal Duarte, 2017. "The impact of the Chinese exchange policy on foreign trade with the European Union," Brazilian Journal of Political Economy, Center of Political Economy, vol. 37(4), pages 870-893.
  • Handle: RePEc:ekm:repojs:v:37:y:2017:i:4:p:870-893:id:164
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    More about this item

    Keywords

    Competitiveness; China; European Union; foreign trade; misalignments; real exchange rate.;
    All these keywords.

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • F10 - International Economics - - Trade - - - General
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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