The Structural Behavior of China-US Trade Flows

32 Pages Posted: 14 Jan 2015

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

University of California, Santa Cruz - Department of Economics

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Xingwang Qian

State University of New York, Buffalo State

Multiple version iconThere are 2 versions of this paper

Date Written: December 29, 2014

Abstract

We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China’s trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports. Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate.

Keywords: import, export, elasticity, real exchange rate, processing trade

JEL Classification: F12, F41

Suggested Citation

Cheung, Yin-Wong and Chinn, Menzie David and Qian, Xingwang, The Structural Behavior of China-US Trade Flows (December 29, 2014). CESifo Working Paper Series No. 5123, Available at SSRN: https://ssrn.com/abstract=2549010 or http://dx.doi.org/10.2139/ssrn.2549010

Yin-Wong Cheung (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Engineering 2, Department of Economics
University of California
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Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Xingwang Qian

State University of New York, Buffalo State ( email )

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