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Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data

Author

Listed:
  • Rasmus Fatum

    (University of Alberta)

  • Runjuan Liu

    (University of Alberta)

  • Jiadong Tong

    (Nankai University)

  • Jiayun Xu

    (Nankai University)

Abstract

A premise of beggar-thy-neighbor policies is that currency depreciations lead to export growth. This premise, however, does not seem validated as there is no consensus in the empirical literature regarding the impact of exchange rate changes on trade flows. We reexamine whether currency fluctuations are systematically associated with trade flows using a rich and unique Chinese customs dataset spanning the universe of bilateral Chinese transaction level trades over the 2000 to 2011 period. This dataset allows us to consider firm-level involvement in processing trade and firm-level dynamics in both export and import markets. Key findings of our firm-level estimations of trade elasticities include that the response of Chinese firms to exchanges rate changes depends strongly on the extent to which firms are involved in processing trade, i.e. heterogeneity in the extent of processing trade is crucial to understanding trade elasticities, and that the Chinese trade balance responds strongly to changes in the relative value of the Chinese Yuan, thereby implying that the influence of exchange rates on trade flows is significant and that currency depreciations do in fact lead to export growth and trade balance improvement.

Suggested Citation

  • Rasmus Fatum & Runjuan Liu & Jiadong Tong & Jiayun Xu, 2018. "Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data," GRU Working Paper Series GRU_2018_021, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2018_021
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    2. Ochan George, 2024. "Exchange rate volatility and its effects on Uganda’s trade balance (1980–2020)," SN Business & Economics, Springer, vol. 4(5), pages 1-31, May.
    3. Thorbecke, Willem & Chen, Chen & Salike, Nimesh, 2021. "China’s exports in a protectionist world," Journal of Asian Economics, Elsevier, vol. 77(C).
    4. Willem THORBECKE & Chen CHEN & Nimesh SALIKE, 2025. "The Diminishing Impact of Exchange Rates on China’s Exports," Discussion papers 25010, Research Institute of Economy, Trade and Industry (RIETI).
    5. Yaying Liu & Jin Chen & Churen Sun, 2022. "Partnership Diplomacy and China’s Exports," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
    6. Rina Bhattacharya & Pranav Gupta & Xingwei Hu & Peter Pedroni, 2018. "How do Structural Features Affect Corporate Exposures to Macro-financial Shocks in Open Economies?," Department of Economics Working Papers 2018-10, Department of Economics, Williams College.
    7. Xiaohua Bao & Hailiang Huang & Larry D. Qiu & Xiaozhuo Wang, 2024. "Exchange rate expectations and exports: Firm‐level evidence from China," Review of International Economics, Wiley Blackwell, vol. 32(2), pages 635-661, May.
    8. Pabai Fofanah, 2020. "Effects of Exchange Rate Volatility on Trade: Evidence from West Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 12(3), pages 32-52.
    9. Sang-Kee Kim & Young-Han Kim, 2020. "Welfare implications of upstream subsidy in the presence of countervailing duties under limited verifiability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 643-663, June.
    10. Bing Lu & Yaqi Wang & Xiaofen Tan, 2020. "Exchange Rate Volatility, Heterogeneous Firms and Market Concentration," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(4), pages 51-75, July.

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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