IDEAS home Printed from https://ideas.repec.org/p/eab/tradew/21912.html
   My bibliography  Save this paper

China’s Reform on Exchange Rate System and International Trade between Japan and China

Author

Listed:
  • Kentaro IWATSUBO

    (Hitotsubashi University, and Policy Research Institute, Ministry of Finance, Japan)

  • Shunji KARIKOMI

Abstract

This paper explores the impacts of exchange rate on trade between Japan and China, with special attention to differences of pricing structure of international trade across industries. Although the Chinese yuan was fixed against the U.S. dollar for several years, it has been fluctuating against the Japanese yen, which provides us with a natural experiment to test the exchange rate effect. We find that exchange rate changes and volatility have little influence on trade volume in most industries, while Chinese economic growth significantly affects Japans export to China. For electrical machinery industry, in which Japanese firms division of production process is prevailing, we find no evidence of exchange rate impact on trade. These results suggest that the recent reform on Chinas exchange rate system does not seem to have a significant effect on the external sectors of the two countries and the cost of exchange rate fluctuation can be, to some extent, mitigated by Japanese firms overseas production and pricing structure.

Suggested Citation

  • Kentaro IWATSUBO & Shunji KARIKOMI, 2006. "China’s Reform on Exchange Rate System and International Trade between Japan and China," Trade Working Papers 21912, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:tradew:21912
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/21912
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
    2. Caporale, Tony & Doroodian, Khosrow, 1994. "Exchange rate variability and the flow of international trade," Economics Letters, Elsevier, vol. 46(1), pages 49-54, September.
    3. Arize, Augustine C & Osang, Thomas & Slottje, Daniel J, 2000. "Exchange-Rate Volatility and Foreign Trade: Evidence from Thirteen LDC's," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 10-17, January.
    4. Frankel, Jeffrey, 2004. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adustment under a Flexible Rate," Working Paper Series rwp04-037, Harvard University, John F. Kennedy School of Government.
    5. Fernald, John & Edison, Hali & Loungani, Prakash, 1999. "Was China the first domino? Assessing links between China and other Asian economies," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 515-535, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kanchana Senanayake Amarasingha Appuhamilage & Ahmed Abdulhusain Ali Alhayky, 2010. "Exchange rate movements' effect on Sri Lanka-China trade," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 3(3), pages 254-267, October.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:tradew:21912. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong). General contact details of provider: http://edirc.repec.org/data/eaberau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.