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The People’s Republic of China’s Currency and Product Fragmentation

Author

Listed:
  • Yamashita, Nobuaki

    (Asian Development Bank Institute)

Abstract

This paper examines how an appreciation of the currency of the People’s Republic of China (PRC)—renminbi—affects the country’s exports in the context of production fragmentation, using a panel data set of the PRC’s trade for 1992/93–2008/09. It constructs two exchange rates for renminbi: one is a bilateral real exchange rate and the other is a real effective exchange rate against East Asian component suppliers. It is found that appreciation of the renminbi would somewhat offset a reduction in the volume of the PRC’s exports induced by lower importing costs of components. Hence, evidence casts further doubts on the efficacy of further unilateral reform of the renminbi exchange rate regime on correcting trade imbalances.

Suggested Citation

  • Yamashita, Nobuaki, 2011. "The People’s Republic of China’s Currency and Product Fragmentation," ADBI Working Papers 327, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0327
    as

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    File URL: http://www.adbi.org/files/2011.11.30.wp327.prc.currency.product.fragmentation.pdf
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    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, pages 691-751.
    2. Daria Taglioni & Richard Baldwin, 2014. "Gravity chains: Estimating bilateral trade flows when parts and components trade is important," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 61-82, November.
    3. 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.
    4. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "China's Current Account and Exchange Rate," NBER Chapters,in: China's Growing Role in World Trade, pages 231-271 National Bureau of Economic Research, Inc.
    5. Prema-chandra Athukorala, 2009. "The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?," The World Economy, Wiley Blackwell, vol. 32(2), pages 234-266, February.
    6. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16.
    7. Athukorala, Prema-chandra & Yamashita, Nobuaki, 2006. "Production fragmentation and trade integration: East Asia in a global context," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 233-256, December.
    8. Thorbecke, Willem, 2011. "Investigating the effect of exchange rate changes on china's processed exports," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 33-46, June.
    9. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, pages 72-95.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    renminbi; prc exports; production fragmentation; exchange rate regime;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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