| International trade has ranked highly among the politic supporting items since thereforming and opening up. Processing trade, a sub item of international trade, has beendeveloping quickly. It accounts for half of the foreign trade volume. Furthermore, the RMBis appreciating continuously. According to the statistics, the value of RMB has grown up to18.23%since the reforming of exchange rate in2005. Thus, it is meaningful to do someresearch on the impact on the processing trade raised by the change of RMB exchange rate.Theoretical and empirical analyses are both used in this essay to reveal the impact of theRMB exchange rate on the processing trade. The theory of comparative advantage isapplied to explain the forming of international trade, to be more specific, the processingtrade. A further explanation of the comparative advantage of exchange rate is stated. Thenbased on the theory, how the fluctuation of exchange rate impacts the trade flow ofprocessing trade via the influence on its relative price is expounded. Ahead of the empiricaltesting, there is a brief introduction of certain methods to calculate the REER (real effectiveexchange rate). Empirically, FDI, imports and exports of processing trade, REER, tradepolicy and other variables are selected. First of all, unit roots test is applied to all thevariables, which shows that they are all first order stationary series. Secondly, cointegrationtests are used to test the long-term equilibrium relationships between the variables. Theresults showed that, processing trade has long-term equilibrium relationship with REER,FID, policy variables respectively, among which, policy variables play the most importantrole in the impact. Finally, conclusions are achieved, and relative advice and suggestion aregiven. |
