The Research On The Effect Of The Real Effective Exchange Rate Of RMB On China's Processing Trade

Since the reforming and opening up, the processing trade of our country has been developing rapidly. Half of foreign trade in our country is processing trade. In addition, the trend in appreciation of the RMB gradually formed. Since the reforming of exchange rate in 2005, the revaluation of the RMB has reached 7.4%. if the appreciation of RMB would influent the development of our country's processing trade and what kind of influence are worthy of study.From theoretical and practical aspects, the paper analysis the influence of the exchange rate of RMB on our country's processing trade. In theory, expounding that there are certain limitations of exchange rate for the achieving of comparative advantage firstly, then based on comparative advantage, analyzing the formation of processing trade, at last, in the framework of relative supply and demand curve, analyzing how the fluctuation of exchange rate influent the trade flow of processing trade through influent its relative price. Before empirical testing, we calculate the real effective exchange rate of RMB by the method of arithmetic average. We found that there are three stages of the real effective exchange rate of RMB: depreciation, appreciation and a slight depreciation in the smooth. In the empirical testing aspect, this paper selected imports and exports of processing trade, FDI, the real effective exchange rate of RMB, trade policy and other variables. Firstly, all these variables are tested for unit roots, the result shows that these variables are the first order stationary series. Then the paper uses cointegration tests to discuss the long term equilibrium relationships between these variables. It is found that there exits long-run equilibrium relationships between the variables of imports and exports of processing trade, real effective exchange rate of RMB, FDI, trade policy. It is also found that the variable of trade policy has played a most significant role in the imports and exports of processing trade, and real effective exchange rate of RMB has elasticity on the imports and exports of processing trade.