China's Exchange Rate and the Balance of Trade
This paper examines the responsiveness of the balance of trade of the People's Republic of China to the real exchange rate. We find that, in both the short-run and the long-run, devaluation serves to improve the balance of trade. Using quarterly data for 1980:1 to 1989:4 we show that the bulk of the response to devaluation occurs over a one-year period, with no J-curve effect. These results suggest that the two-tier price system and other measures to liberalize the Chinese economy have made the exchange rate an effective indirect tool for regulating trade. Copyright 1993 by Kluwer Academic Publishers
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