The Currency of the People’s Republic of China and Production Fragmentation

19 Pages Posted: 30 Nov 2011

Date Written: November 30, 2011

Abstract

This paper examines how an appreciation of the currency of the People’s Republic of China (PRC) - renminbi - affects the country’s exports in the context of production fragmentation, using a panel data set of the PRC’s trade for 1992/93–2008/09. It constructs two exchange rates for renminbi: one is a bilateral real exchange rate and the other is a real effective exchange rate against East Asian component suppliers. It is found that appreciation of the renminbi would somewhat offset a reduction in the volume of the PRC’s exports induced by lower importing costs of components. Hence, evidence casts further doubts on the efficacy of further unilateral reform of the renminbi exchange rate regime on correcting trade imbalances.

Keywords: renminbi, prc exports, production fragmentation, exchange rate regime

JEL Classification: F14, F23, F31

Suggested Citation

Yamashita, Nobuaki, The Currency of the People’s Republic of China and Production Fragmentation (November 30, 2011). ADBI Working Paper 327. Available at SSRN: https://ssrn.com/abstract=1966447 or http://dx.doi.org/10.2139/ssrn.1966447
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