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Impact of Renminbi Appreciation on China’s Trade Balance: From Empirical Evidence

DOI: 10.4236/ajibm.2017.76058, PP. 816-831

Keywords: Renminbi Appreciation, Trade Balance, Real Effective Exchange Rate

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Abstract:

By estimating trade balance equation, export equation and import equation, this paper shows empirically that China’s trade surplus is not sensitive to the fluctuations in the real effective exchange rate, but the price elasticity has become large and significant in the period from 2005 onwards after the new exchange rate regime was instituted on 21 July, 2005. In the latter case, I found divergent results on ordinary trade and processing trade, i.e. the appreciation in Renminbi has found to reduce ordinary trade balance and increase processing trade balance. In addition, I found the appreciation has larger impact on processing trade (both the processing exports and the processing imports) than it has on ordinary trade.

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