Revaluation of the Chinese Yuan and Triad Trade: A Gravity Assessment[1]
Miaojie Yu[2]
China Center for Economic Research (CCER)
National School of Development
Peking University
No. E2009001 April 23, 2009
Abstract
The literature had paid little attention to the endogenous nexus between exchange rates and bilateral trade. In this paper, I use a gravity model to investigate the two-way causality between exchange rates and bilateral trade with data from China, Japan, and the United States during the 2002-2007 period. After controlling for the simultaneous bias between exchange rates and bilateral trade, the extensive empirical evidence shows that the revaluation of the Chinese Yuan against the dollar significantly reduced China's exports to the United States but had no significant effects on China's exports to Japan. These findings are robust to different measures, econometric methods, and period coverage.
JEL: F1, F2
Keywords: Bilateral Exchange Rate, Bilateral Export, Gravity Model
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[1]This draft is prepared for the conference "China, Japan, and the United States: A Deeper Integration" organized by the Asian Development Bank Institute in Tokyo in May 2009. I thank Robert Feenstra, Judith Dean, Yiping Huang, Tomohiko Inui, Feng Lu, Justin Lin, Mary Lovely, Peter Petri, Joaquim Silvestre, Wei Tian, and other conference participants for their helpful comments. Financial support from the Asian Development Bank Institute is gratefully acknowledged. I also thank Hui Li and Miao Ouyang for their superb research assistance. All remaining errors are mine.
[2]China Center for Economic Research, Peking University, Beijing 100871, China. Phone: 86-10-6275-3109, Fax: 86-10-6275-1474, Email: mjyu@ccer.pku.edu.cn.
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