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On Trade Balance and Exchange Rates: Further Evidence from China’s Bilateral Trade - La bilancia commerciale e i tassi di cambio: ulteriori evidenze dalle bilance commerciali bilaterali cinesi

Author

Listed:
  • Mohammadi, Hassan

    (Illinois State University, Department of Economics)

  • Yue, Kan

    (Illinois State University, Department of Economics)

Abstract

We investigate long-run relations and short-run dynamics between China’s bilateral trade balance and real exchange rates with thirteen major trading partners over 1981-2008. Maximum likelihood tests of cointegration reveal no evidence of significant long-run relationship between the two variables. These findings are robust to endogenous breaks in long-run relations, nonlinear relations in the adjustment process, and the sample size. There is also no evidence that real exchange rates have a significant effect on the trade balance in the short run. These are reflected in tests of Granger-causality, impulse response functions and variance decompositions. Thus, there is no support for the view that China’s large and growing trade surplus is a reflection of undervalued RMB. As such, policies aimed at revaluing RMB do not necessarily contribute to a significant decline in China’s trade surplus. - In questo studio vengono esaminate la relazione di lungo periodo e le dinamiche di breve periodo tra le bilance commerciali bilaterali cinesi e i tassi reali di cambio con i maggiori tredici partner nel periodo 1981-2008. I test di cointegrazione maximum likelihood non evidenziano significative relazioni di lungo periodo tra le due variabili. Questi risultati resistono a rotture endogene nelle relazioni di lungo periodo, in quelle non lineari nel processo di aggiustamento e alla dimensione del campione. Inoltre non emerge evidenza che i tassi reali di cambio abbiano un effetto significativo sulla bilancia commerciale nel breve periodo. Ciò è riscontrato nel test di causalità di Granger, nelle funzioni di risposta agli impulsi e nelle scomposizioni di varianza. Non c’è quindi sostegno alla tesi per cui il grande e crescente surplus commerciale cinese sarebbe una conseguenza della sottovalutazione del renminbi. Pertanto politiche volte alla sua rivalutazione non porterebbero necessariamente ad una significativa riduzione del surplus commerciale cinese.

Suggested Citation

  • Mohammadi, Hassan & Yue, Kan, 2012. "On Trade Balance and Exchange Rates: Further Evidence from China’s Bilateral Trade - La bilancia commerciale e i tassi di cambio: ulteriori evidenze dalle bilance commerciali bilaterali cinesi," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 65(4), pages 581-604.
    • Handle: RePEc:ris:ecoint:0670
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric Adjustments; Causality; Cointegration; Real Exchange Rates; Structural Breaks; Trade Balance; Unit Roots;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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