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

         
Author Name Willem THORBECKE (Senior Fellow, RIETI) / CHEN Chen (Xi'an Jiaotong-Liverpool University. Suzhou) / Nimesh SALIKE (Xi'an Jiaotong-Liverpool University. Suzhou)
Creation Date/NO. September 2020 20-E-075
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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 Chinese manufactured exports to 190 partner countries disaggregated at the Harmonized System 4-digit level. We measure complexity using Hausmann and Hidalgo's (2009) product complexity index. We find that price elasticities are lower for more complex goods. These results imply that the People's Republic of China can reduce its exporters' exposure to tariffs, trade wars, and exchange rate volatility by upgrading its export basket.