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China's Exchange Rate and the Balance of Trade

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  • Brada, Josef C
  • Kutan, Ali M
  • Zhou, Su

Abstract

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

Suggested Citation

  • Brada, Josef C & Kutan, Ali M & Zhou, Su, 1993. "China's Exchange Rate and the Balance of Trade," Economic Change and Restructuring, Springer, vol. 26(3), pages 229-242.
  • Handle: RePEc:kap:ecopln:v:26:y:1993:i:3:p:229-42
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    Cited by:

    1. BAAK, SaangJoon, 2008. "The bilateral real exchange rates and trade between China and the U.S," China Economic Review, Elsevier, vol. 19(2), pages 117-127, June.
    2. Shujie Yao & Zongyi Zhang, 2003. "Openness and Economic Performance: A Comparative Study of China and the Asian NIEs," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(1), pages 71-95.
    3. Bennett, John & David Dixon, Huw, 2001. "Monetary Policy and Credit in China: A Theoretical Analysis," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 297-314, April.
    4. Bahmani-Oskooee, Mohsen & Ratha, Artatrana, 2010. "S-Curve dynamics of trade between U.S. and China," China Economic Review, Elsevier, vol. 21(2), pages 212-223, June.
    5. Wang, Chun-Hsuan & Lin, Chun-Hung A. & Yang, Chih-Hai, 2012. "Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners," Japan and the World Economy, Elsevier, vol. 24(4), pages 266-273.
    6. Nicolaas Groenewold & Lei He, 2006. "The US-China Trade Imbalance: Will Revaluing the RMB Help (Much)?," Economics Discussion / Working Papers 06-27, The University of Western Australia, Department of Economics.
    7. Wang, Yongqing & Wan, Guanghua, 2008. "China?s Trade Imbalances: The Role of FDI," WIDER Working Paper Series 103, World Institute for Development Economic Research (UNU-WIDER).
    8. Artatrana Ratha & Eungmin Kang & Mary Edwards, 2008. "Does an Undervalued Currency Promote Growth? Evidence from China," Working Papers 2008-2 Classification- F3, Saint Cloud State University, Department of Economics.
    9. Shujie Yao, 2006. "On economic growth, FDI and exports in China," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 339-351.
    10. Ananda Weliwita & Hiroshi Tsujii, 2000. "The Exchange Rate and Sri Lanka¡¯s Trade Deficit," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 131-153, December.
    11. Groenewold, Nicolaas & He, Lei, 2007. "The US-China trade imbalance: Will revaluing the RMB help (much)?," Economics Letters, Elsevier, vol. 96(1), pages 127-132, July.
    12. Zhaoyong Zhang, 1996. "The Exchange Value of the Renminbi and China's Balance of Trade: An Emp irical Study," NBER Working Papers 5771, National Bureau of Economic Research, Inc.
    13. Saang Joon Baak, 2006. "Measuring misalignments in the Korean exchange rate (ROK Economic System Series No.10)," Discussion papers 0604, ERINA - Economic Research Institute for Northeast Asia.

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