The Effect Of RMB Exchange Rate Changes On Trade Between Korea And China

The purpose of this study is to examine the effects of exchange rate changes on bilateral trade between Korea and China. Although the RMB yuan was fixed against the US dollar for several years, it has been fluctuating against the Korean won, which provides us with a natural experiment to test the exchange rate effect. This paper analyzed whether and to what extent the exchange rate between the RMB yuan and Korea won has significant impacts on bilateral trade between two countriesChina is currently Korea's biggest trading partner and Korea is China's third biggest trading partner. Korea's recent economic growth has been partly due to increased exports to China, leading us to believe that China's the economic growth will be an important exogenous factor in Korea's growth. Both nations' reliance on each other has become more significant ever since.In order to assess the possible effects of appreciation of Chinese RMB yuan, this paper use The Imperfect Substitutes Model based on the data of the two countries for the period from the first quarter 2000 to the last quarter 2009 between China and Korea to conduct regression analysis. Findings in this paper imply that real exchange rate changes have a little influence on trade volume between Korea and China, but its effect is weaker than the effect of GDP and CPI in the two countries.