Are Chinese Imports Sensitive to Exchange Rate Changes?

Author Name THORBECKE, Willem  (Senior Fellow, RIETI) /SMITH, Gordon  (Anderson College)
Creation Date/NO. February 2012 12-E-007
Research Project East Asian Production Networks and Global Imbalances
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Estimating the price elasticity of China's imports is difficult because many imports are used to produce exports and because the real effective exchange rate has remained fairly stable. To circumvent the first problem, we control for re-exports, and to increase the discriminatory power of the tests, we employ a panel data set including imports from 25 countries. The results indicate that a 10 percent RMB appreciation would increase imports for processing and ordinary imports by three to four percent. As China climbs the value chain, the potential for import substitution and hence the import price elasticity should increase. Thus, a renminbi appreciation should help to raise China's imports and rebalance its economy.

Published: Willem Thorbecke and Gordon Smith, 2012. "Are Chinese Imports Sensitive to Exchange Rate Changes?," Chinese Economic Policy Review, Vol. 01(2).