Real Exchange Rate and Economic Growth in China
DOI:
https://doi.org/10.6000/1929-7092.2012.01.8Keywords:
China, economic growth, real exchange rateAbstract
Abstract: By proposing a real exchange rate augmented Cobb-Douglas production function, it is demonstrated that the real exchange rate exerts multiple effects on economic growth. If a real appreciation has negative effects on growth by deteriorating international competitiveness in the tradable sector and by causing job losses, at the same time it exercises positive effects on economic growth by favoring capital intensity, human capital and by exerting pressure for efficiency improvements. The function is estimated by using the GMM system estimation approach and a panel data for the 29 Chinese provinces over the period from 1987 to 2008. The results show that the real exchange rate appreciation had a negative effect on economic growth, which was more marked in coastal provinces than in inland provinces, contributing to a reduction in the difference in GDP per capita between the two kinds of provinces.
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http://dx.doi.org/10.1016/S1043-951X(02)00069-X
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http://dx.doi.org/10.1016/j.chieco.2007.02.001
Jefferson, Gary. H. and Jian Su. 2006. “Privatization and restructuring in China: Evidence from shareholding ownership, 1995-2001”.Journal of Comparative Economics 34(1): 146-166.
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Leung Danny and Terence Yuen. 2005. “Do Exchange Rates Affect the Capital-Labour Ratio? Panel Evidence from Canadian Manufacturing Industries”, Bank of Canada.
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Leibenstein Harvey 1966. “Allocative Efficiency versus X-Efficiency”. American Economic Review 56(3): 392-415.
Li, Xiaoying; Xiaming Liu and David Parker. 2001. “Foreign Direct Investment and productivity Spillovers in the Chineses Manufacturing sector”. Economic System 25(4): 305-321.
http://dx.doi.org/10.1016/S0939-3625(01)00029-2
Liu, Tung and Li Kui-Wai 2006. “Disparity in Factor Contributions between Coastal and Inner Provinces in Post-reform China”. China Economic Review 17(4): 449-470.
http://dx.doi.org/10.1016/j.chieco.2006.06.001
Lin, Justin Yifu and Peilin Liu. 2008. “Development Strategies and Regional Income Disparities in China”. Pp. 56-78, in Inequality and Growth in Modern China edited by Guanghua Wan, New York: Oxford University Press.
Liu, Xiaming., David Parker Kirit Vaidya, Yingqi Wei. 2001. “The impact of foreign direct investment on labor productivity in the Chinese electronics industry”. International Business Review 10(4): 421-439.
http://dx.doi.org/10.1016/S0969-5931(01)00024-5
MacDonald, Ronald R. and Flavio Vilela Vieira. 2010. A Panel Data Investigation of Real Exchange Rate Misalignment and Growth, May 1. CESifo Working Paper Series 3061.
Madariaga, Nicole and Sandra Poncet. 2007. “FDI in Chinese Cities: Spillover and Impact on Growth”. World Economy 30(5): 837-862.
http://dx.doi.org/10.1111/j.1467-9701.2007.01025.x
Rodrik, Dani. 2008. “The Real Exchange Rate and Economic Growth,” Brookings Papers on Economic Activity 2, 365–412.
Roodman, David. 2009a. “How to do xtabond2: An introduction to difference and system GMM in Stata”, The Stata Journal 9(1): 86-136.
Roodman, David. 2009b. “A Note on the Theme of Too Many Instruments”, Oxford Bulletin of Economics and Statistics. 71(1): 135-158.
http://dx.doi.org/10.1111/j.1468-0084.2008.00542.x
Sun, Haishun 1998, Foreign Investment and Economic Development in China 1979-1996, Ashgate.
Sun, Haishun; Phillip Hone and Hristos Doucouliagos. 1999. “Economic Openness and Technical Efficiency, a Case Study of Chinese Manufacturing Industries”. Economics of Transition 7(3): 615-636.
http://dx.doi.org/10.1111/1468-0351.00028
Wang, Yan and Yudong Yao. 2003. “Source of China’s Economic Growth, 1952-99: Incorporating Human Capital Accumulation”. China Economic Review 14(1): 32-52.
http://dx.doi.org/10.1016/S1043-951X(02)00084-6
World Bank. 2009. “From poor areas to poor people: China’s evolving poverty reduction agenda”, in An assessment of poverty and inequality in China, Poverty Reduction and Economic Management Department, East Asia and Pacific Region.
Zheng, Jinghai and Angang Hu. 2006. “An Empirical Analysis of Provincial Productivity in China, 1979-2001”. Journal of Chinese Economic and Business Studies 4(3): 221-239.
http://dx.doi.org/10.1080/14765280600991917
http://dx.doi.org/10.2307/2297968
Baldwin, Robert E. 1995. “The Effect of Trade and Foreign Direct Investment on Employment and Relative Wages.” NBER Working Paper Series 5037.
Benaroya, François and Didier Janci. 1999. “Measuring exchange rates misalignments with purchasing power parity estimates”, Pp. 165-187, in Exchange rate policies in emerging Asian countries, edited by Stefan Collignon, Jean Pisani-Ferry and Yung Chul Park Routledge, New York.
Berg, Andrew and Yanliang Miao. 2010. “The Real Exchange Rate and Growth Revisited: The Washington Consensus Strikes Back?” IMF working paper WP/10/58.
Blundel, Richard and Stephen Bond. 1998. “Initial Conditions and Moment Restrictions in Dynamic Panel Models”. Journal of Econometrics 87(1): 115-143.
http://dx.doi.org/10.1016/S0304-4076(98)00009-8
Buckley, Peter. J, Jeremy Clegg. and Chengqi Wang. 2002. “The Impact of Inward FDI on Performance of Chinese Manufacturing Firms”. Journal of International Business Studies 33(4): 637-655.
http://dx.doi.org/10.1057/palgrave.jibs.8491037
Chen, Baizhu and Feng Yi. 2000. “Determinants of economic growth in China: Private enterprise, education, and openness,” China Economic Review 11(1), 1-15.
http://dx.doi.org/10.1016/S1043-951X(99)00014-0
Chen, Ruo and Dao Mai. 2011. “The Real Exchange Rate and Employment in China,” IMF Working Paper 11/148.
Cline, William R. and John Willimson 2007 “Estimates of the Equilibrium Exchange rate of the Renminbi: Is there a Consensus and if not, Why not?” Pp. 151-154 in Debating China’s Exchange Rate Policy, edited by Morris Goldstein and Nicholas Lardy, Peterson Institute for International Economics.
Dollar, David. 1992. ""Outward-oriented developing economies really do grow more rapidly: Evidence from 95 LDCs, 1976–1985. Economic Development and Cultural Change 40(3): 523–544.
http://dx.doi.org/10.1086/451959
Dougherty, Sean, Herd Richard and Ping He. 2007. “Has a private sector emerged in China’s industry? Evidence from a quarter of a million Chinese firms”. China Economic Review 18 (3): 309-334.
http://dx.doi.org/10.1016/j.chieco.2007.02.006
Eichengreen, Barry. 2008. The Real Exchange Rate and Economic Growth. Commission on Growth and Development Working Paper, No. 4, the World Bank.
Fleisher, Belton M. and Jian Chen. 1997. “The Coast-Noncoast Income Gap, Productivity, and Regional Economic Policy in China”. Journal of Comparative Economics 25(2): 220-236.
http://dx.doi.org/10.1006/jcec.1997.1462
Fu, Xiaolan and Vudayagiri N. Balasubramanyam. 2005. “Exports, Foreign Direct Investment and Employment: The Case of China”. The World Economy 28(4): 607-625.
http://dx.doi.org/10.1111/j.1467-9701.2005.00694.x
Guillaumont, Patrick and Sylviane Guillaumont Jeanneney. 1992. “Exchange Rate Policies and the Social Consequences of Adjustment in Africa” Pp. 12-24, in Economic Reform in Sub-Saharan Africa, edited by Ajay Chhibber and Stanley Fischer, the World Bank, Washington D.C.
Guillaumont Jeanneney, Sylviane and Ping Hua. 2001. “How Does Real Exchange Rate Influence Income Inequality between Urban and Rural Areas in China?” Journal of Development Economics 64 (2): 529-545.
http://dx.doi.org/10.1016/S0304-3878(00)00149-8
Guillaumont Jeanneney, Sylviane and Ping Hua. 2002. “The Balassa–Samuelson effect and inflation in the Chinese provinces”. China Economic Review 13(2-3): 134-160.
http://dx.doi.org/10.1016/S1043-951X(02)00069-X
Guillaumont Jeanneney, Sylviane and Ping Hua. 2004. “Why do more open Chinese provinces have bigger governments?” Review of International Economics 12(3): 525-542.
http://dx.doi.org/10.1111/j.1467-9396.2004.00465.x
Guillaumont Jeanneney, Sylviane and Ping Hua. 2011. “How does Real Exchange Rate influence labour productivity in China?” China Economic Review 22(4): 628-645.
http://dx.doi.org/10.1016/j.chieco.2010.04.008
Harris, Richard. G. 2001. “Is There a Case for Exchange Rate Induced Productivity Declines?” Pp. 277-309,in Re-Visiting the Case for Flexible Exchange Rates, edited by Lawrence Schembri, Bank of Canada, Ottawa.
Hausmann, Ricardo; Lant Pritchett; Dani Rodrik. 2005. Growth Accelerations. Journal of Economic Growth 10 (4), 303-329.
http://dx.doi.org/10.1007/s10887-005-4712-0
Holz, Carsten. A. 2006. “New capital estimates for China”. China Economic Review 17(2): 142-185.
http://dx.doi.org/10.1016/j.chieco.2006.02.004
Hua, Ping. 2005. “How does education at all levels influence productivity growth: Evidence from the Chinese provinces” China Economic Quarterly 5(1): 147-166.
Hua, Ping. 2007. “Real exchange rate and manufacturing employment in China”. China Economic Review 18 (3): 335-353.
http://dx.doi.org/10.1016/j.chieco.2007.02.001
Jefferson, Gary. H. and Jian Su. 2006. “Privatization and restructuring in China: Evidence from shareholding ownership, 1995-2001”.Journal of Comparative Economics 34(1): 146-166.
http://dx.doi.org/10.1016/j.jce.2005.11.008
Khor, Hoe Ee 1993. “China’s Foreign Currency Swap Market”. IMF Paper on Policy Analysis and Assessment PPAA/94/1. December.
Kraay, Aart. 2006. “Exports and economic performance: Evidence from a panel of Chinese enterprises”. Pp. 139?160, in Global Integration and Technology Transfer, edited by Hoekman, Beata and Smarzynska Javorcik, Washington DC: The World Bank.
Krugman Paul. 1989. “Surévaluation et accélération des productivités : un modèle spéculatif ». Pp.121-135, in Commerce international et concurrence parfaite, edited by Didier Laussei et Christian Montet, Paris, Economica.
Leung Danny and Terence Yuen. 2005. “Do Exchange Rates Affect the Capital-Labour Ratio? Panel Evidence from Canadian Manufacturing Industries”, Bank of Canada.
Leibenstein Harvey 1957. Economic Backwardness and Economic Growth, New-York, Wiley.
Leibenstein Harvey 1966. “Allocative Efficiency versus X-Efficiency”. American Economic Review 56(3): 392-415.
Li, Xiaoying; Xiaming Liu and David Parker. 2001. “Foreign Direct Investment and productivity Spillovers in the Chineses Manufacturing sector”. Economic System 25(4): 305-321.
http://dx.doi.org/10.1016/S0939-3625(01)00029-2
Liu, Tung and Li Kui-Wai 2006. “Disparity in Factor Contributions between Coastal and Inner Provinces in Post-reform China”. China Economic Review 17(4): 449-470.
http://dx.doi.org/10.1016/j.chieco.2006.06.001
Lin, Justin Yifu and Peilin Liu. 2008. “Development Strategies and Regional Income Disparities in China”. Pp. 56-78, in Inequality and Growth in Modern China edited by Guanghua Wan, New York: Oxford University Press.
Liu, Xiaming., David Parker Kirit Vaidya, Yingqi Wei. 2001. “The impact of foreign direct investment on labor productivity in the Chinese electronics industry”. International Business Review 10(4): 421-439.
http://dx.doi.org/10.1016/S0969-5931(01)00024-5
MacDonald, Ronald R. and Flavio Vilela Vieira. 2010. A Panel Data Investigation of Real Exchange Rate Misalignment and Growth, May 1. CESifo Working Paper Series 3061.
Madariaga, Nicole and Sandra Poncet. 2007. “FDI in Chinese Cities: Spillover and Impact on Growth”. World Economy 30(5): 837-862.
http://dx.doi.org/10.1111/j.1467-9701.2007.01025.x
Rodrik, Dani. 2008. “The Real Exchange Rate and Economic Growth,” Brookings Papers on Economic Activity 2, 365–412.
Roodman, David. 2009a. “How to do xtabond2: An introduction to difference and system GMM in Stata”, The Stata Journal 9(1): 86-136.
Roodman, David. 2009b. “A Note on the Theme of Too Many Instruments”, Oxford Bulletin of Economics and Statistics. 71(1): 135-158.
http://dx.doi.org/10.1111/j.1468-0084.2008.00542.x
Sun, Haishun 1998, Foreign Investment and Economic Development in China 1979-1996, Ashgate.
Sun, Haishun; Phillip Hone and Hristos Doucouliagos. 1999. “Economic Openness and Technical Efficiency, a Case Study of Chinese Manufacturing Industries”. Economics of Transition 7(3): 615-636.
http://dx.doi.org/10.1111/1468-0351.00028
Wang, Yan and Yudong Yao. 2003. “Source of China’s Economic Growth, 1952-99: Incorporating Human Capital Accumulation”. China Economic Review 14(1): 32-52.
http://dx.doi.org/10.1016/S1043-951X(02)00084-6
World Bank. 2009. “From poor areas to poor people: China’s evolving poverty reduction agenda”, in An assessment of poverty and inequality in China, Poverty Reduction and Economic Management Department, East Asia and Pacific Region.
Zheng, Jinghai and Angang Hu. 2006. “An Empirical Analysis of Provincial Productivity in China, 1979-2001”. Journal of Chinese Economic and Business Studies 4(3): 221-239.
http://dx.doi.org/10.1080/14765280600991917
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Published
2012-11-06
How to Cite
Hua, P. (2012). Real Exchange Rate and Economic Growth in China. Journal of Reviews on Global Economics, 1, 89–105. https://doi.org/10.6000/1929-7092.2012.01.8
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