How has China's balance of trade responded to changes in Renminbi's exchange rate? : an empirical investigation

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How has China's balance of trade responded to changes in Renminbi's exchange rate? : an empirical investigation

 

Author: Kwong, Siu-ling
Title: How has China's balance of trade responded to changes in Renminbi's exchange rate? : an empirical investigation
Degree: M.Sc.
Year: 2000
Subject: Balance of trade -- China
Foreign exchange rates -- China
China -- Economic conditions -- 1976-2000
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Business Studies
Pages: vii, 113 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1524873
URI: http://theses.lib.polyu.edu.hk/handle/200/3514
Abstract: The responsiveness of trade balance to exchange rate adjustment in transitional economies is a controversial issue. The primary focus of this study is an empirical investigation of how China's balance of trade has responded to changes in exchange rate, accompanied by incremental liberalization in both the trade and foreign exchange regimes over the period of 1985 - 1999. Econometric models, which incorporate the income and exchange rate variables in real terms and take into account of the policy constraints, are estimated. The results show that the income approach is less desirable in describing China's experience prior to 1994. Also, it is evident that policy factors have a dominant effect on the trade balance in the case of China. Subsequent to a unification of dual exchange rates, it is found that China's trade balance is more responsive to changes in exchange rate. Additionally, a J-curve characterized with a deep downward slope and a shallow stem is exhibited. However, the J-curve phenomenon is a delayed one. Moreover, it is uncovered that the long-run effect, shown by the sum of the lagged coefficients, is close to zero. Apparently, the hypothesis that trade balance responds favorably in the long run to a devaluation in the real exchange rate is not supported. Finally, there is evidence of a statistically strong causal effect running from the real effective exchange rate index to the real balance of trade.

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