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Empirical analysis of the impact of the RMB exchange rate changes on foreign trade

Author: ZhangWeiWei
Tutor: LiWenJun
School: Graduate School of the Chinese Academy of Social Sciences
Course: Quantitative Economics
Keywords: RMB exchange rate Foreign Trade Trade patterns Cointegration Analysis Panel data model
CLC: F752
Type: Master's thesis
Year: 2010
Downloads: 1475
Quote: 5
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Abstract


After China's accession to the WTO, the issue of RMB has been hot issues in the economic field, and to clarify the impact of the RMB exchange rate of China's foreign trade is the basic premise explain this problem. Based on the monthly data from January 1994 to December 2009 using cointegration analysis methods from total sub-trade mode and by country three angles econometric analysis of the trade effects of exchange rate movements. The empirical results show that the appreciation of the RMB exchange rate will lead to a decrease in exports and imports. 1% appreciation of the real exchange rate of RMB, total exports and total imports decreased by 1.823% and 1.583%, respectively, together, will make net exports decreased by 0.240%. At the same time, the RMB exchange rate on the processing trade is small compared to the general trade. RMB exchange rate flexibility in processing trade exports -0.325 (absolute value) is less than the general export trade exchange rate flexibility -1.943; processing trade imports, exchange rate elasticity of -1.508 (absolute value) is less than the general import exchange rate elasticity of -2.205 absolute value. In addition, the robustness of the analysis of the model coefficients of total exports and total imports, export exchange rate flexibility in the upward trend in 2002, 2005, remained stable in about -1.8; imports of two distinct stages of change in the exchange rate flexibility Before 1997, less exchange rate flexibility, elastic larger after 2000, stabilize in about -1.6. At the same time, the empirical analysis also found that factors other than the exchange of trade also has important implications. The foreign income exports is much larger than the impact of the exchange rate, it is the most important factor to decide the level of exports. The domestic revenue impact of imports is less than the impact of the exchange rate, the latter is to determine the most important factors of imports. Foreign direct investment has a role in boosting the overall trade, but its role is limited. The impact of exchange rate volatility on exports tiny, but more significant impact on imports, and the impact is greater than the general import of processing imports. Import and export have a significant role in promoting the accession to the WTO, by contrast, the pulling effect of exports over imports. The Chinese government response to the world financial crisis in 2008, stimulative fiscal policy and loose monetary policy a huge role in promoting exports. In this paper, built by China and the European Union, the United States, Japan, South Korea, China, Taiwan, Singapore and Malaysia bilateral data sample panel data model also gives meaningful results. The total export model estimation results show that the decline in the bilateral exchange rate of RMB appreciation would make Chinese exports to the European Union, Japan, South Korea, China, Taiwan and Singapore. The EU's exchange rate flexibility, -2.040, followed by Singapore, the exchange rate elasticity of -1.174, Japan, Korea and China Taiwan elasticity is relatively small, were -0.606, -0.692 and -0.449. Between China and the United States and Malaysia bilateral exchange rate of the Chinese export impact of these two countries is not significant. The total imported model estimated results show that, China and Malaysia, the bilateral exchange rate of the Chinese from Malaysia imports affect significantly, China and other countries (regions) between the bilateral exchange rate of China from the corresponding countries (regions) of imports affect significantly with a negative. Singapore's exchange rate flexibility is -1.528, followed by China, Taiwan and the United States, respectively, -1.434 and -1.070, other smaller countries (regions), Japan, -0.817, EU -0.572, Korea -0.548. In conclusion, the paper argues that foreign trade appreciation of the renminbi in the short term would have a negative impact, and can not effectively improve the situation of China trade imbalance, but in the long run there is conducive to the healthy development of China's economy. Accelerate the pace of economic restructuring, and the gradual implementation of the floating exchange rate regime based on market supply and demand may be a better policy choices. The innovation of this paper has three main points. Respectively, from the total sub-trade mode and by country three perspectives on the import and export the same time, in addition to considering the classical theory of exchange rates and the income of the foreign trade, FDI, exchange rate volatility is also considering China's accession to the WTO and the impact of the world financial crisis on foreign trade in 2008; paper aggregate analysis, the estimated coefficient robustness analysis, partly explains why many papers in the import and export of exchange rate flexibility reasons; panel data model estimated using both the classic OLS estimation method and solve cointegration estimated inconsistencies FM-OLS estimation method.

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