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Are Chinese Imports Sensitive To Exchange Rate Changes?

  • WILLEM THORBECKE

    ()

    (Research Institute of Economy, Trade and Industry, 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo, 100-8901, Japan)

  • GORDON SMITH

    ()

    (Anderson College, 316 Boulevard, Anderson, SC 29621, USA)

Estimating the price elasticity of China's imports is difficult because many imports are used to produce exports and because the real effective exchange rate has remained fairly stable. To circumvent the first problem, we control for re-exports, and to increase the discriminatory power of the tests, we employ a panel data set including imports from 25 countries. The results indicate that a 10% RMB appreciation would increase imports for processing and ordinary imports by 3%–4%. As China climbs the value chain, the potential for import substitution and hence the import price elasticity should increase. Thus a renminbi appreciation should help to raise China's imports and rebalance its economy.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal China Economic Policy Review.

Volume (Year): 01 (2012)
Issue (Month): 02 ()
Pages: 1250012-1-1250012-15

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Handle: RePEc:wsi:ceprxx:v:01:y:2012:i:02:p:1250012-1-1250012-15
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  1. Martin Wagner & Jaroslava Hlouskova, 2010. "The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study," Econometric Reviews, Taylor & Francis Journals, vol. 29(2), pages 182-223, April.
  2. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal, 2011. "China's Foreign Trade in the Perspective of a More Balanced Economic Growth," Working Papers 2011-03, CEPII research center.
  3. Thorbecke, Willem, 2011. "Investigating the effect of exchange rate changes on china's processed exports," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 33-46, June.
  4. Koichiro Kamada & Izumi Takagawa, 2005. "Policy Coordination in East Asia and across the Pacific," Hi-Stat Discussion Paper Series d05-101, Institute of Economic Research, Hitotsubashi University.
  5. Willem Thorbecke & Gordon Smith, 2010. "How Would an Appreciation of the Renminbi and Other East Asian Currencies Affect China's Exports?," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 95-108, 02.
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