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

  • Yamashita, Nobuaki

    (Asian Development Bank Institute)

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.

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File URL: http://www.adbi.org/files/2011.11.30.wp327.prc.currency.product.fragmentation.pdf
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Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 327.

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Length: 19 pages
Date of creation: 30 Nov 2011
Date of revision:
Handle: RePEc:ris:adbiwp:0327
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  1. 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.
  2. 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, 02.
  3. Richard Baldwin & Daria Taglioni, 2011. "Gravity Chains: Estimating Bilateral Trade Flows When Parts And Components Trade Is Important," NBER Working Papers 16672, National Bureau of Economic Research, Inc.
  4. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  5. 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.
  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. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  8. Prema-chandra Athukorala, 2007. "The Rise of China and East Asian Export Performance: Is the Crowding-out Fear Warranted?," Departmental Working Papers 2007-10, The Australian National University, Arndt-Corden Department of Economics.
  9. 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.
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