China's Rise, Asymmetric Trade Shocks and Exchange Rate Regimes

35 Pages Posted: 24 Jan 2019

Date Written: February 2019

Abstract

China’s rapid growth provides a natural experiment to study the effects of asymmetric trade shocks on the competitiveness of OECD countries. The different levels of exposure to Chinese trade competition, as measured using an index of export similarity, triggered asymmetric shocks as China’s trade surged. Motivated by a Ricardian framework, this paper finds that countries with exports similar to those of China experience a loss in competitiveness compared with countries with a different trade structure. Once an additional layer of distinction is introduced between fixed and flexible exchange rate regimes, I find that countries with a fixed exchange rate and with relatively high similarity to China experience a real appreciation.

Suggested Citation

Caselli, Francesca, China's Rise, Asymmetric Trade Shocks and Exchange Rate Regimes (February 2019). Review of International Economics, Vol. 27, Issue 1, pp. 1-35, 2019. Available at SSRN: https://ssrn.com/abstract=3320720 or http://dx.doi.org/10.1111/roie.12353

Francesca Caselli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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