A Research On The Impact Of Rmb Appreciation On China-vietnam Bilateral Trade

Traditional methods on the impact of exchange rate devaluation or revaluation on trade flows are simply estimating the elasticity of trade volume to relative prices. Such study relies heavily on the aggregated data of bilateral trade. More recent studies take use of bilateral trade data and methodologies such as gravity models. This paper applies the Gravity model of trade in assessing the impact of currency appreciation or depreciation on bilateral trade flows between China and Vietnam. Given the current revaluation prospect and the big share of China in world trade, we find China's gradual shift toward a more flexible exchange rate regime which is initially not meant to address China's trade surplus issues still has big impacts on countries that are experiencing huge trade deficits with China like American and the EU. However, many researchers still argue that the current scale of the trade surplus is such that the RMB exchange rate alone may not be able to address the imbalance significantly. Vietnam, as a neighbor country that has a trade relation with China for long time, is unexceptionally affected by the RMB fluctuations. In this study, using a series of trade data for the period 1991-2009, we expect to find clear evidences supporting the prediction that a appreciation or depreciation of the yuan places significant impact on China's trade with Vietnam.