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A China Round of Multilateral Trade Negotiations

  • Aaditya Mattoo

    ()

    (Word Bank)

  • Prachi Mishra

    ()

    (International Monetary Fund)

  • Arvind Subramanian

    ()

    (Peterson Institute for International Economics)

This paper estimates the impact of China’s exchange rate changes on exports of competitor countries in third markets, known as the “spillover effect.” Recent theory is used to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. The variation is used—afforded by disaggregated trade data—across exporters, importers, product, and time to estimate this spillover effect. The results show robust evidence of a statistically and quantitatively significant spillover effect. Estimates suggest that, on average, a 10 percent appreciation of China’s real exchange rate boosts a developing country’s exports of a typical 4-digit Harmonized System (HS) product category to third markets by about 1.5 to 2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

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Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-4.

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Date of creation: Mar 2012
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Handle: RePEc:iie:wpaper:wp12-4
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