China's Changing Trade Elasticities
International Monetary Fund (IMF) - Asia and Pacific Department
International Monetary Fund (IMF)
China & World Economy, Vol. 16, No. 3, pp. 1-21, May-June 2008
China's sectoral trade composition, product quality mix, and the import content of processing exports have all changed substantially during the past decade. This has rendered trade elasticities estimated using aggregate data highly unstable, with more recent data pointing to significantly higher demand and price elasticities. Sectoral differences in these parameters are also very wide. All this suggests greater caution should be exercised when using historical data to simulate the response of China's economy to external shocks and exchange rate changes. Analyses based on models with estimated coefficients largely representative of China in the 1980s and 1990s are likely to turn out to be wrong, perhaps even dramatically.
Number of Pages in PDF File: 21
Keywords: elasticity, exchange rate, trade, trade balance
JEL Classification: F40, F30Accepted Paper Series
Date posted: May 28, 2008
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