A Test Of Balassa-Samuelson Hypothesis Of RMB Real Exchange Rate

Balassa-Samuelson Hypothesis connects the real exchange rate and the difference of the output labor ratio, and connects the relative price of the nontraded products and the traded products. Balassa-Samuelson Hypothesis leads to a conclusion that there will be real exchange rate appreciates along with the economy growth. This thesis tests the relationship between the RMB real exchange rate against US dollar and the relative economic growth. The thesis uses the data from 1988 to 2000, and makes the test of one-year and three-year periods. The thesis finds that there is no Balassa-Samuelson effect on RMB exchange rate at present. The proper reasons include that the sufficient labor of China makes wage of nontraded sector increase slow, the export structure is relatively low and exchange rate can reflect the economy completely because China is rapidly transforming form a closed planned economy to an open economy.