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Exchange Rate Adjustments and US Trade with China: What does a State Level Analysis Tell Us?

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  • Firat Demir

    (Department of Economics, University of Oklahoma, 436 CCD1, 308 Cate Center Drive, Norman, OK 73019, USA)

  • Chen Wu

    (College of Business Administration, Plymouth State University, 17 High Street, MSC27 Plymouth, NH 03264, USA)

Abstract

In this paper we explore the trade effects of bilateral real exchange rate changes between the 50 US states and China over the period of 2005–2012. The empirical results based on state-level trade flows and state-level relative prices suggest that the long-run real exchange rates elasticity of US exports to China is in the range of [–3.77, –2.85] and that of Chinese exports to the US is in the range of [–0.23, –3.34]. We also find that state-level differences in human capital and financial development are significant determinants of their export performances with respect to China. Based on the most optimistic scenario, our results suggest that the RMB needs to further appreciate against the dollar by at least 1.8 percent a year for 16 years for the US to achieve balanced trade with China.

Suggested Citation

  • Firat Demir & Chen Wu, 2017. "Exchange Rate Adjustments and US Trade with China: What does a State Level Analysis Tell Us?," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(2), pages 1-14, June.
    • Handle: RePEc:wsi:gejxxx:v:17:y:2017:i:02:n:gej-2016-0059
    DOI: 10.1142/GEJ-2016-0059
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    1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
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    9. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Roxana Wright & Chen Wu, 2022. "The Uneven Short-Run Effects of the COVID-19 Pandemic on Foreign Direct Investment," JRFM, MDPI, vol. 15(10), pages 1-21, October.

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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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