Exchange Rates and Prices under Processing Trade: A Macroeconomic Analysis
In an economy dominated by labor-intensive processing trade, such as China, real exchange rate appreciation can possibly increase rather than decrease net exports. As the import content of processed exports (a proxy for dependence on processing trade) increases in its continuum, the stable equilibrium for the exchange rate and price level eventually yields to a saddle-point equilibrium. Unless the initial inflation (or deflation) rate is uniquely moderate at a given exchange rate, either the depreciation-inflation spiral or the appreciation-deflation spiral can dominate. Monetary and fiscal policies can help a processing-trade dependent country in structural transition from excessive engagement in processing trade (the saddle-point equilibrium) to a more sustainable and balanced trade structure. Copyright International Atlantic Economic Society 2010
Volume (Year): 38 (2010)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: http://www.springer.com|
Postal:Suite 650, International Tower, 229 Peachtree Street, N.E., Atlanta, GA 30303
Phone: (404) 965-1555
Fax: (404) 965-1556
Web page: http://www.iaes.org/
More information through EDIRC
|Order Information:||Web: http://www.springer.com/economics/journal/11293/PS2|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- GAULIER, Guillaume & LEMOINE, Francoise & UNAL-KESENCI, Deniz, 2007.
"China's emergence and the reorganisation of trade flows in Asia,"
China Economic Review,
Elsevier, vol. 18(3), pages 209-243.
- Guillaume Gaulier & Françoise Lemoine & Deniz Ünal, 2006. "China’s Emergence and the Reorganisation of Trade Flows in Asia," Working Papers 2006-05, CEPII research center.
- David Burton & Wanda S Tseng & Kalpana Kochhar & Hoe Ee Khor & Dubravko Mihaljek, 1994. "Economic Reform in China; A New Phase," IMF Occasional Papers 114, International Monetary Fund.
- Ho, Lok Sang & Wei, Xiangdong & Wong, Wai Chung, 2005. "The effect of outward processing trade on wage inequality: the Hong Kong case," Journal of International Economics, Elsevier, vol. 67(1), pages 241-257, September.
- Robert C. Feenstra & Gordon H. Hanson, 2005.
"Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 120(2), pages 729-761.
- Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
- Feltenstein, Andrew & Farhadian, Ziba, 1987. "Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(2), pages 137-156, May.
- Ronald McKinnon, 2006. "China'S Exchange Rate Appreciation In The Light Of The Earlier Japanese Experience," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 287-298, October.
- McKinnon, Ronald, 2006. "China's Exchange Rate Appreciation in the Light of the Earlier Japanese Experience," ZEW Discussion Papers 06-035, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Subramanian S. Sriram, 2001. "A Survey of Recent Empirical Money Demand Studies," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1-3.
- Ronald McKinnon & Gunther Schnabl, 2009. "China's financial conundrum and global imbalances," BIS Working Papers 277, Bank for International Settlements.
- Qiao, Hong, 2007. "Exchange rates and trade balances under the dollar standard," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 765-782.
- Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 2001. "Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 80-104, March.
- Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
- Hartmut Egger & Peter Egger, 2005. "The Determinants of EU Processing Trade," The World Economy, Wiley Blackwell, vol. 28(2), pages 147-168, February.
- Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:38:y:2010:i:3:p:345-357. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.