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Licensed Unlicensed Requires Authentication Published by De Gruyter January 19, 2017

Exchange Rate Adjustments and US Trade with China: What does a State Level Analysis Tell Us?

Firat Demir and Chen Wu
From the journal Global Economy Journal

Abstract

In this paper we explore the trade effects of bilateral real exchange rate changes between the 50 US states and China over the period of 2005–2012. The empirical results based on state-level trade flows and state-level relative prices suggest that the long-run real exchange rates elasticity of US exports to China is in the range of [–3.77, –2.85] and that of Chinese exports to the US is in the range of [–0.23, –3.34]. We also find that state-level differences in human capital and financial development are significant determinants of their export performances with respect to China. Based on the most optimistic scenario, our results suggest that the RMB needs to further appreciate against the dollar by at least 1.8 percent a year for 16 years for the US to achieve balanced trade with China.

JEL Classification: F14; F31; G15; E44.

The authors’ names are written in alphabetical order and do not indicate seniority.

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Appendix

A1 Variable Definitions and Data Sources

Exportsij,t (Exports of State i to China in year t in USD): TradeStats Express™ - State Export Data, Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration (ITA), US Department of Commerce.

Exportsji,t (Exports of China to State i in year t in USD): TradeStats Express™ - State Import Data, OTII, Manufacturing and Services, ITA, US Department of Commerce.

Nominal exchange rate (E, dollar per RMB): International Financial Statistics (IFS) of IMF.

CPIChina (Consumer Price Index of China, base year=2010): China Statistical Yearbook, multiple years, National Bureau of Statistics of China.

CPIUSA (Consumer Price Index of USA, base year=2010): IFS, IMF

RPP: Regional Economic Accounts, Bureau of Economic Analysis (BEA) Regional Price Parities are expressed relative to the national average which is set at 100 for each year).

RER (State level real exchange rate between USD and RMB, US Dollars per RMB): Computed by the authors using data on the USD-RMB NER, CPI, and RPP.

YChina(Chinese real GDP in constant 2009 dollars): Bank national accounts data, and OECD National Accounts data files.

Yi (RGSP, real state-level GDP in constant chained 2009 dollars): Regional Economic Accounts, Bureau of Economic Analysis (BEA).

HKUSA (USA, Percent of population aged 25 and above with a high school degree or above): Community Survey, American Fact Finder, US Census Bureau.

HKChn (China, Share of High School Graduates in Chinese population aged 15–64): Annual National Data, National Bureau of Statistics of China

CR (Total liabilities of all commercial banks in state i (China) over state nominal GSP): Historical Statistics on Banking (HSOB), Federal Deposit Insurance Cooperation (FDIC; National Data, National Bureau of Statistics of China.

Published Online: 2017-1-19

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