Working Paper: NBER ID: w17875
Authors: Yinwong Cheung; Menzie D. Chinn; Xingwang Qian
Abstract: We find that Chinese trade flows respond to economic activity and relative prices - as represented by a trade weighted exchange rate - but the relationships are not always precisely or robustly estimated. Chinese exports are generally well-behaved, rising with foreign GDP and decreasing as the Chinese renminbi (RMB) appreciates. However, the estimated income elasticity is sensitive to the treatment of time trends. Estimates of aggregate imports are more problematic. In many cases, Chinese aggregate imports actually rise in response to a RMB depreciation and decline with Chinese GDP. This is true even after accounting for the fact a substantial share of imports are subsequently incorporated into Chinese exports. We find that some of these counter-intuitive results are mitigated when we disaggregate the trade flows by customs type, commodity type, and the type of firm undertaking the transactions. However, for imports, we only obtain more reasonable estimates of elasticities when we allow for different import intensities for different components of aggregate demand (specifically, consumption versus investment), or when we include a relative productivity variable.
Keywords: Chinese trade flows; RMB appreciation; economic activity; trade elasticities; global imbalances
JEL Codes: F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign GDP (F29) | Chinese exports (F14) |
| RMB appreciation (F31) | Chinese exports (F14) |
| RMB depreciation (F31) | Aggregate imports (C43) |
| Rising GDP (E20) | Aggregate imports (C43) |
| Chinese exports (F14) | Aggregate imports (C43) |