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How does real exchange rate influence labour productivity in China?

Author

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  • Sylviane Guillaumont Jeanneney

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Ping Hua

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

Since China's transition to a market economy, the labour productivity growth has been dramatically rapid, in particular since 1994. This speeding up has been accompanied by the reverse of the exchange rate policy of China, which has strongly depreciated its currency before 1994, and then either appreciated or stabilized it. The theoretical arguments suggesting several kinds of real exchange rate impact on labour productivity are developed. An econometric model is then proposed and estimated, using panel data for the twenty-nine Chinese provinces and for the period from 1986 to 2007. The econometric results show that the appreciation of the real exchange rate had a favourable effect on the labour productivity growth, leading to a kind of virtuous circle: the real appreciation of the currency boosts the growth of labour productivity while, according to the Balassa-Samuelson effect, productivity growth tends to push up the real appreciation. Moreover, this favourable effect is stronger in inland provinces than in coastal provinces, contributing to a minimizing of the gap between inland and coastal provinces.

Suggested Citation

  • Sylviane Guillaumont Jeanneney & Ping Hua, 2011. "How does real exchange rate influence labour productivity in China?," Post-Print halshs-00666806, HAL.
  • Handle: RePEc:hal:journl:halshs-00666806
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00666806
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    References listed on IDEAS

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    Cited by:

    1. Samba Mbaye, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," Working Papers halshs-00687948, HAL.
    2. Sylviane GUILLAUMONT JEANNENEY & Ping HUA, 2015. "The impact of Chinese competition on Africa’s manufacturing," Working Papers 201521, CERDI.
    3. Mamun, Md. Al & Sohag, Kazi & Uddin, Gazi Salah & Shahbaz, Muhammad, 2015. "Remittance and domestic labor productivity: Evidence from remittance recipient countries," Economic Modelling, Elsevier, vol. 47(C), pages 207-218.
    4. repec:fdi:wpaper:1786 is not listed on IDEAS
    5. Diao, Xinshen & McMillan, Margaret, 2018. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, Elsevier, vol. 109(C), pages 511-522.
    6. Qin, Jing & Lu, Xinsheng & Zhou, Ying & Qu, Ling, 2015. "The effectiveness of China’s RMB exchange rate reforms: An insight from multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 421(C), pages 443-454.
    7. Sylviane Guillaumont Jeanneney & Ping Hua, 2015. "China’s African Financial Engagement, Real Exchange Rates and Trade between China and Africa," Post-Print halshs-01150612, HAL.
    8. Xu, Jiayun & Mao, Qilin & Tong, Jiadong, 2016. "The impact of exchange rate movements on multi-product firms' export performance: Evidence from China," China Economic Review, Elsevier, vol. 39(C), pages 46-62.
    9. repec:fdi:wpaper:1785 is not listed on IDEAS
    10. Samba MBAYE, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," Working Papers 201211, CERDI.
    11. Yoon, Jong Cheol & Min, Dai Hong & Jei, Sang Young, 2019. "Empirical test of purchasing power parity using a time-varying cointegration model for China and the UK," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 521(C), pages 41-47.

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