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The Effect of China's RMB Exchange Rate Movement on Its Agricultural Export: A Case Study of Export to Japan

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  • Longjiang, Chen

Abstract

This paper attempts to examine the relationship between changes and volatility of China's RMB exchange rates and its agricultural export. A model is constructed to analyze the effect of RMB exchange rate movements on agricultural exports facing two constraints including China's particular exchange rate system and TBT / SPS in agricultural trade. The model reveals that the net trade effect of RMB exchange rate movements relies on the comparison of exchange rate level change (appreciation or depreciation) effect and exchange rate risk effect. Taking China’s agricultural exports to Japan as a case, this paper makes an empirical examination. A GARCH (1, 1) model is specified to measure the exchange rate volatility and ADL regression with structural break dummy variables is estimated based on the results of unit root test with structural break. The results show RMB depreciation against yen will promote export growth while appreciation hinder export, and exchange rate volatility positively stimulates agricultural exports to Japan. However, the effect of exchange rate volatility on the export is much smaller than that of exchange rate level, which leads to a negative net effect to the export. The policy implications among the empirical results are also discussed.

Suggested Citation

  • Longjiang, Chen, 2009. "The Effect of China's RMB Exchange Rate Movement on Its Agricultural Export: A Case Study of Export to Japan," 2009 Conference, August 16-22, 2009, Beijing, China 49995, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae09:49995
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    File URL: http://purl.umn.edu/49995
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    References listed on IDEAS

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    1. Barkoulas, John T. & Baum, Christopher F. & Caglayan, Mustafa, 2002. "Exchange rate effects on the volume and variability of trade flows," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 481-496, August.
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