The Research Of The Impact Of Intra-firm Trade On The Exchange Rate Pass-through Between America And China

With China’s rapid economic development and the trend of economic globalization hasbecome more apparent, the trade unbalance between the China and U.S become moreworse.The intra-trade in multinational companies between China and U.S develop morerapidly,The intra-trade in multinational companies turn out to be the important part of the tradebetween the China and U.S, and affect the trade balance between the two countries. Thisshould be check out by the impact of the intra-trade on the exchange rate pass-throughbetween the China and U.S in the case of the appreciation the RMB against U.S dollar.Firstly，based on the analysis of the multinational companies pricing mechanism and theirresponse to exchange rate movement, this article found that the internal advantages what themultinational companies have make it have more ability to adapt to the fluctuations inexchange rates than the companies within the external market. The transfer pricing in theintrafirm could affect the calculation of exchange rate pass-through. Then,This article analysethe intra-trade current situation bentween the China and U.S, found that the intra-tradebentween two countries are develop very much and have the intention to transfer the price.Using the monthly data from January2005to December2008, this article estimate theexchange rate pass-through flexi-bility of the foods, chemicals, metals, machinery, electricaland transportation equipment on the imports and exports between China and U.S. Based onthe analysis on the relation between the intra-firm trade rate and the exchange ratepass-through flexibility that occurred on the trade between the two countries, therefore,thisarticle found that there is a correla-tionship between the intra-firm trade rate and the exchangerate pass-through flexibility. This prove that intra-trade impact on the exchange rate pass-through between the China and U.S. This article set a new model,including the intra-firm tradetransfer pricing, which further confirmed the view that the intra-firm trade can impact theexchange rate pass-through and prove that intra-firm trade angulation the exchange ratepass-through effect.This article consider that multinational companies transfer their profit between courntriesby transfer pricing, so the estimate of the traditional exchange rate pass-through are notexactly reflect the ablity of company inland in pricing and the impact which exchange rateadjust on the benefit of trade,which the new exchange rate pass-through coefficient ofnew model can.