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The Relationship between Product Complexity and Exchange Rate Elasticities: Evidence from the People’s Republic of China’s Manufacturing Industries

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  • WILLEM THORBECKE

    (Research Institute of Economy, Trade and Industry, Tokyo, Japan2International Business School Suzhou, Xi’an Jiaotong–Liverpool University, Suzhou, People’s Republic of China)

  • CHEN CHEN

    (International Business School Suzhou, Xi’an Jiaotong–Liverpool University, Suzhou, People’s Republic of China)

  • NIMESH SALIKE

    (International Business School Suzhou, Xi’an Jiaotong–Liverpool University, Suzhou, People’s Republic of China)

Abstract

More complex products are less substitutable in international trade and may therefore have lower price elasticities. We investigate this issue using 960 types of manufactured exports from the People’s Republic of China (PRC) to 190 partner economies disaggregated at the Harmonized System 4-digit level. We measure complexity using Hidalgo and Hausmann’s (2009) product complexity index. We find that price elasticities are lower for more complex goods. These results imply that the PRC can reduce its exporters’ exposure to tariffs, trade wars, and exchange rate volatility by upgrading its export basket.

Suggested Citation

  • Willem Thorbecke & Chen Chen & Nimesh Salike, 2021. "The Relationship between Product Complexity and Exchange Rate Elasticities: Evidence from the People’s Republic of China’s Manufacturing Industries," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 38(02), pages 189-212, September.
    • Handle: RePEc:wsi:adrxxx:v:38:y:2021:i:02:n:s0116110521500037
    DOI: 10.1142/S0116110521500037
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    Cited by:

    1. Chen Chen & Nimesh Salike & Willem Thorbecke, 2023. "Exchange rate effects on China's exports: Product sophistication and exchange rate elasticity," Asian Economic Journal, East Asian Economic Association, vol. 37(3), pages 371-400, September.

    More about this item

    Keywords

    exchange rate elasticities; PRC exports; product sophistication;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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