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The Role of the Real Exchange Rate Adjustment in Expanding Service Employment in China

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Listed:
  • Yingfeng Xu

    (University of Alberta, Department of Economics)

  • Xiaoyi Yan

    (Department of Human Resources and Social Development Canada)

Abstract

It is widely accepted that China needs to shift from its past mode of export-led growth and start to rely more on domestic demand. What role could the real appreciation of the Chinese yuan play in this regard? We attempt to quantify the impact on the structure of the Chinese economy of the real appreciation of the Chinese yuan. We argue that the potential of the service sector to generate income and jobs may be significantly under-estimated by official statistics, as a result of the under-estimation of household consumption of services. While there is no evidence of large under-valuation for the Chinese yuan, we do find that a real appreciation in the order of 20% would bring the Chinese price level in line with the world average level, after the Balassa-Samuelson effect is factored in. In turn, such a real appreciation could increase the service share of employment by 7%.

Suggested Citation

  • Yingfeng Xu & Xiaoyi Yan, 2009. "The Role of the Real Exchange Rate Adjustment in Expanding Service Employment in China," Working Papers 2009-11, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2009_011
    as

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    References listed on IDEAS

    as
    1. Holz, Carsten A., 2004. "Deconstructing China's GDP statistics," China Economic Review, Elsevier, vol. 15(2), pages 164-202.
    2. Alan Heston, "undated". "What Can Be Learned About the Economies of China and India from Purchasing Power Comparisons?," Indian Council for Research on International Economic Relations, New Delhi Working Papers 229, Indian Council for Research on International Economic Relations, New Delhi, India.
    3. Huang, Haizhou & Wang, Shuilin, 2004. "Exchange rate regimes: China's experience and choices," China Economic Review, Elsevier, vol. 15(3), pages 336-342.
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    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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