RMB revaluation and China's trade: Do es the RMB have a limited effect on China's surplus?

Shi Shu Peng, Ming Huan Liou, Hao Yen Yang, Chih Hai Yang

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines the influence of the RMB fluctuations on trade in primary, intermediate, and final goods between China and its 49 major trading partners over the period 1992-2009. The empirical result shows that the sensitivity of trade to the exchange rate varies substantially for different commodities. Overall, China's exports are less sensitive to the exchange rate than imports. Counterintuitively, we find that RMB appreciation reduces China's intermediate goods imports. A possible reason is that the appreciation harms its final goods exports in the assembly sector, thus indirectly lowering the demand for the required intermediate goods imports. This finding, along with the finding that final goods exports, the major source of the trade surplus, are not sensitive to exchange rate changes, are probably the main reasons why RMB appreciation has a limited effect on restraining China's rising surplus.

Original languageEnglish
Pages (from-to)333-362
Number of pages30
JournalTaiwan Economic Review
Volume46
Issue number3
DOIs
StatePublished - Sep 2018

Keywords

  • Dynamic panel GMM
  • Exchange rate elasticity
  • Trade surplus

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