China's exchange rate and the balance of trade |
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Authors: | Josef C Brada Ali M Kutan Su Zhou |
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Institution: | 1. College of Business, Department of Economics, Arizona State University, 85287-3806, Tempe, Arizona, USA 2. Southern Illinois University, Edwardsville 3. University of Texas, San Antonio
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Abstract: | This paper examines the responsiveness of the balance of trade of the People's Republic of China to the real exchange rate. We find that, in both the short-run and the long-run, devaluation serves to improve the balance of trade. Using quarterly data for 1980:I to 1989:IV we show that the bulk of the response to devaluation occurs over a one year period, with noJ-curve effect. These results suggest that the two-tier price system and other measures to liberalize the Chinese economy have made the exchange rate an effective indirect tool for regulating trade. |
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