Exchange Rate Pass-through Effect And Trade Structure Adjustment On The Background Of RMB Appreciation

Taking the appreciation of RMB as background, this dissertation discusses the influences of RMB exchange rate fluctuation to import and export, trade balance and trade structure adjustment in the view of exchange rate pass-through.. Lots of research have been done on the relation between RMB exchange rate and trade balance in China, however, there is little study on the influences, degree, and process of RMB exchange rate pass-through. Combining both theoretic and empirical analysis, this dissertation discusses the exchange rate pass-through of sub-sectors, country differences in the impact of balance of payments from RMB appreciation, and the leading process of trade structure adjustment.This dissertation analyzes theoretically the mechanism of exchange rate pass-through which exchange rate influences commodity prices and trade balance. The degree of trade balance improvement lies on exchange rate pass-through effect.Not only the changes in import and export commodity prices but also the changes of domestic consumer prices both resulting from exchange rate fluctuation could affect trade balance.Usually,exchange rate fluctuation affects the price of import and export goods firstly, and then affects the price of domestic goods, affects the price of domestic consumer goods lastly.The series of price adjusting process requires a time lag because of price rigidity.To discuss the pass-through effect of RMB appreciation to export industry, this dissertation sets up a theoretical model based on the price of domestic manufactures and the exchange rate elasticity of export commodity price. Using data covered from Jan. 2004 to Dec. 2007, empirical tests are done on the transfer effect of China's export goods price in six industries. Result shows that the influences of RMB appreciation are remarkably different among industries. The elasticity of exchange rate pass-through decides whether the industry's expanding or shrinking. Labor-intensive Industry may not be washed out. Persistent RMB appreciation will hurt those industries which are weak in price transmitting and need enough time to adjust.Corresponding to export industries, this dissertation does empirical analysis to price pass-through of import commodities. Tests of Vector Error Correction Model indicate that the exchange rate pass through of import commodities is incomplete and the extent is different between short and long period. The effect of foreign production cost to import commodity price is more than other factors.Different from traditional studies which used aggregate trade data,this dissertation uses bilateral data to investigate the relationship between real exchange rate volatility and trade balance. It tests the relationship between China and its largest trade partners, and finds that the relationship is not identical in case of different countries whenever in the long term or short term. The results show that bilateral data is more appropriate in analyzing the relationship.After analyzing the influence of RMB appreciation on trade balance, it discusses the influence of RMB appreciation on the structure of import and export goods. Empirical study shows that the impacts are different between the labor-intensive industries and the capital-intensive industries, which would change trade structure and promote export structure in a long run. For discussing the microscopic reasons in-depth, it analyzes the principles how exchange rate fluctuation affects foreign trade structure. On one hand, RMB appreciation suppresses the link of manufactory to upstream industry and the expand of downstream logistics industry related to domestic processing trade; On the other hand, RMB appreciation helps to change the current state of dominant labor-intensive manufacturing industry, facilitate the dynamic comparative advantages of capital-and technology-intensity, promote traditional manufacturing to high value-added R&D and marketing industries. Therefore, RMB appreciation is conducive to convert China's processing trade industry structure in the international division.