An Empirical Analysis Of China's Exports Based On JJ Cointegration Test And ECM

Exports play a crucial role in the development of the macroeconomy of China. Based on Johansen multivariate cointegration method and error correction model ,this paper mainly investigates the short-term and long-term relationships between real exports and its determinants that are real foreign income, relative export price and RMB exchange rate volatility.The main innovations of this paper lie in three aspects: First, we employ monthly high-frequency data instead of quarterly data which most other papers used, thus the robustness of the conclusions of this paper can be greatly improved. Second, we take advantage of the latest data which covers the period from the outbreak of subprime mortgage crisis, therefore we can accurately investigate the influence of subprime mortgage crisis and even the financial crisis to the exports of China. Third, In order to construct an model appropriate for the reality of China, we take it into consideration that China officially joined WTO in Dec, 2002 and China implemented the reform of the system for RMB exchange rate on July 21st,2005,As a result, the conclusions based on this model could be more accurate.Results indicate five points: First, Johansen multivariate cointegration test reveals a stationary long-run equilibrium relationship between real exports and its determinants (exchange rate volatility not included).Second, the income coefficient (positive) is relatively large ,indicating that China's economy have been depending excessively on foreign demand rather than domestic demand .Third, the relative export price coefficient (negative) is also comparatively big, reflecting that China's export industry compete in the international market mainly by price advantage . Fourthly, results of ECM show that exchange rate volatility imposes a negative effect on real exports. Fifthly, compared with employing quarterly data, the conclusions based on monthly high-frequency data reveals more thoroughly the deep-rooted problems of our economy and export industry.Finally, seven pieces of pertinent policy advices are given.