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Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports

Author

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  • Willem Thorbecke

    (Asian Development Bank Institute)

Abstract

Many argue that the yuan needs to appreciate to rebalance the Peoples Republic of Chinas trade. However, empirical evidence on the effects of a CNY appreciation on the Peoples Republic of Chinas exports has been mixed for the largest category of exports, processed exports. Since much of the value-added of these goods comes from parts and components produced in Japan, the Republic of Korea, and other East Asian supply chain countries, it is important to control for exchange rate changes in these countries. Employing dynamic ordinary least squares, or DOLS, techniques and quarterly data, this paper finds that exchange rate appreciations across supply chain countries would cause a much larger drop in processed exports than a unilateral appreciation of the yuan.

Suggested Citation

  • Willem Thorbecke, 2010. "Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports," Finance Working Papers 21989, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:21989
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    File URL: http://www.eaber.org/node/21989
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    References listed on IDEAS

    as
    1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    2. 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, February.
    3. Fung, K. C. & Lau, Lawrence J., 2003. "Adjusted estimates of United States-China bilateral trade balances: 1995-2002," Journal of Asian Economics, Elsevier, vol. 14(3), pages 489-496, June.
    4. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
    5. Hayakawa, Kazunobu & Kimura, Fukunari, 2009. "The effect of exchange rate volatility on international trade in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 395-406, December.
    6. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    7. Shaghil Ahmed, 2009. "Are Chinese exports sensitive to changes in the exchange rate?," International Finance Discussion Papers 987, Board of Governors of the Federal Reserve System (U.S.).
    8. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2004. "The Impact of China on the Exports of Other Asian Countries," NBER Working Papers 10768, National Bureau of Economic Research, Inc.
    9. Sarah Y. Tong & Yi Zheng, 2008. "China's Trade Acceleration and the Deepening of an East Asian Regional Production Network," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(1), pages 66-81.
    10. THORBECKE, Willem, 2009. "Can East Asia be an Engine of Growth for the World Economy?," Discussion papers 09006, Research Institute of Economy, Trade and Industry (RIETI).
    11. Guillaume Gaulier & Françoise Lemoine & Deniz Ünal-Kesenci, 2005. "China’s Integration in East Asia: Production Sharing, FDI & High-Tech Trade," Working Papers 2005-09, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    China; exchange rate policy; exchange rate appreciations; trade;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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