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Research on Impact of RMB Exchange Rate to China’s Agricultural Products Export Trade

Author: ZhuWei
Tutor: LuYanQiu
School: Jilin University
Course: International trade
Keywords: Renminbi Exchange rate movement Agricultural product export Cointegration test
CLC: F752.62
Type: Master's thesis
Year: 2009
Downloads: 976
Quote: 3
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Abstract

Exchange rate is the most important comprehensive price index used in international economy transaction and executes the function of transforming price. Since the breakdown of the Bretton Woods system in 1973,exchange rates have been allowed to float almost freely and frequently in many countries,while the growth rate of international trade between these countries slowdowns The People’s Bank of China announces that: from July 21,2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime base on market supply and demand with reference to a basket of currencies RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility. As a large agricultural country and having the largest population of peasantry in the world , China must pay more attention on agricultural issues. Above all, the most important problem is the international trade of agricultural products. According to the theory between the exchange rate and trade, the export will suffer a lot from the appreciation. The continuing appreciation of the RMB would lead to a serial of problems,such as an increase in imports and the reduction of exports on farm produce ,deteriorate the international trade situation of agricultural products, embarrass the development of China’s agriculture,decrease the farmers’income,pose a threat to the country’s food security. Well, whether the RMB exchange rate could influence the China’s exported trade? Whether the RMB appreciation could improve the trade balance in other countries? It is significant in understanding these questions.This paper reviews the related theories and documents of the effect of exchange rate on trade balance, that is, the exchange rate elasticity theory, J-curve effect theory, as well as the impact of trade balance measurement analysis, on the previous summary of the results of research carried out, including the trade balance of exchange rate movements on the literature review and the impact of exchange rate movements on exports of agricultural products affected literature review. By drawing on the results of previous studies, research ideas come to this article and research method.After describing the theory, this article on China’s exchange rate reform, summed up the situation to introduce the relevant definition of the exchange rate, exchange rate reform, describes the evolution of the four stages. This article also describe the current situation of China’s exports of agricultural products, study the reform of the exchange rate for different periods of time, exchange rate changes described in all stages of the export trade of agricultural products, qualitative analysis of the different phases of exchange rate movements on the impact of agricultural exports. Based on qualitative analysis, this paper collects the related datum from the July 2005 to July 2008 and analyzes how the RMB exchange rate influences the China’s export trade positively. Empirical analysis is the center of this paper, that examine the relationship between the export trade of China’s agricultural and the RMB’s nominal exchange rate and real effective exchange rate of RMB, using the time series unit root test, cointegration tests and causality test method. .Through the time series unit root test, cointegration tests and causality tests, obtained the relationship between the RMB exchange rate and real effective exchange rate and China’s agricultural exports. Finally, according to the results of empirical analysis , the paper comment on the impact of trade and propose the corresponding policy recommendations about the RMB exchange rate movements on exports of agricultural products in China.The study concluded that in this article: RMB nominal exchange rate and agricultural exports exist the long-term cointegration relationship, but no causal relationship ,short-term nominal exchange rate movements on exports of agricultural products in China do not have an impact;.RMB real effective exchange rate and China’s exports of agricultural products exists the long-term cointegration relationship , you can build revised cointegration regression model. Short-term changes in real effective exchange rate of RMB will be affected to some extent, China’s agricultural exports, but not the extent of the impact between the same causal relationship does not exist. China’s agricultural exports to changes in the RMB exchange rate is not sensitive. As a major exporter of agricultural products, the appreciation of the RenMinBi should be positive, take precautions, and in all aspects to improve the competitiveness of agricultural products in China, so that appreciation of the RMB to China’s agricultural trade to minimize the negative effects. Specifically, the State Government should strengthen its short-term capital control, rational use of China’s huge foreign exchange reserves, strengthening the exchange rate risk prevention education, flexibility in the use of measures to avoid exchange rate risks. For agricultural products export enterprises, the Government should intensify efforts to support, adjust and optimize the agricultural structure, and for exports of agricultural products to find new strengths, focusing on support for agricultural products processing enterprises, especially small and medium-sized agricultural products processing enterprises. Agricultural exports as their own, should adjust and optimize the structure of the development of deep processing of agricultural products, greatly expanding the international market and export diversification strategy, and deepen the reform of agricultural trade, trade, industry and agriculture to speed up the establishment of export-oriented business model integration organizations to carry out the international agricultural market research, the establishment of agricultural supply, demand, market price changes, forecasting systems, the realization of industrial and large-scale industrialization.

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