China's Economic Growth, Structural Change and the Lewisian Turning Point
In a country such as China, which maintains strict controls on foreign exchange and frequently intervenes in the currency market, it is not surprising that the local currency is persistently undervalued in nominal terms. Normally, one would expect such a policy of deliberate currency undervaluation to result in a sharp rise in domestic prices, with abnormally low prices reversed not through an appreciation of the nominal exchange rate but through a rise in domestic prices. Why is this not occurring in China? A possible explanation is that, due to certain structural reasons, the equilibrium real exchange rate for China is considerably lower than that of other developing countries. Taking this hypothesis as our point of departure, we examine how undervalued the Chinese yuan is in terms of purchasing power parity by comparing China's experience with other developing countries and the development process of developed countries in the past. In addition, we construct an open economy growth model with three sectors, where - similar to the Lewis growth model - there is surplus labor in the primary sector. Using this model, we analyze the relationship between the economic growth process and the level of absolute prices (real exchange rate). We show that the absolute price level will not increase until the economy reaches the Lewisian turning point. In addition, we show that in an economy like China, where there are strong barriers to the migration of labor to the manufacturing sector and where the ratio of net exports of goods and services to GDP is high, the economy will not reach the turning point until GDP per worker reaches a certain level.
|Date of creation:||Sep 2012|
|Date of revision:|
|Contact details of provider:|| Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901|
Web page: http://www.rieti.go.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lewis, W Arthur, 1979. "The Dual Economy Revisited," The Manchester School of Economic & Social Studies, University of Manchester, vol. 47(3), pages 211-29, September.
- Kyoji Fukao & Kozo Kiyota & Ximing Yue, 2006. "China's Long-Term International Trade Statistics: By Commodity, 1952-1964 and 1981-2000," Hi-Stat Discussion Paper Series d05-147, Institute of Economic Research, Hitotsubashi University.
- Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
- Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003.
"Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia,"
Discussion Paper Series
a434, Institute of Economic Research, Hitotsubashi University.
- Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical intra-industry trade and foreign direct investment in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 468-506, December.
- Kyoji Fukao & Hikari Ishido & Keiko Ito, 2003. "Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia," Discussion papers 03001, Research Institute of Economy, Trade and Industry (RIETI).
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009.
"China's Current Account and Exchange Rate,"
NBER Working Papers
14673, National Bureau of Economic Research, Inc.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," Working Papers 142009, Hong Kong Institute for Monetary Research.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," CESifo Working Paper Series 2587, CESifo Group Munich.
- Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
- Kiyotaka Sato & Junko Shimizu & Nagendra Shrestha & Zhaoyong Zhang, 2012.
"New Estimates of the Equilibrium Exchange Rate: The Case for the Chinese Renminbi,"
The World Economy,
Wiley Blackwell, vol. 35(4), pages 419-443, 04.
- SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Zhaoyong ZHANG, 2010. "New Estimates of the Equilibrium Exchange Rate: The case for the Chinese renminbi," Discussion papers 10045, Research Institute of Economy, Trade and Industry (RIETI).
- Samuelson, Paul A, 1994. "Facets of Balassa-Samuelson Thirty Years Later," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 201-26, October.
- Blanchard, Olivier & Giavazzi, Francesco & Sá, Filipa, 2005.
"The US Current Account and the Dollar,"
CEPR Discussion Papers
4888, C.E.P.R. Discussion Papers.
- Jeffrey A. Frankel & C. Fred Bergsten & Michael L. Mussa, 1994. "Exchange Rate Policy," NBER Chapters, in: American Economic Policy in the 1980s, pages 293-366 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:12056. 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: (NUKATANI Sorahiko)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.