Total Factor Productivity Of Research On The Effects Of Rmb Real Exchange Rate And Economic Growth

The Balassa-Samuelson Model is usually used for explaining the bias between purchasing power parity and real exchange rate. The model holds that, higher productivity implies higher wage rate in the tradables sector. Owing to the flowing of labor between sectors, nontradables sector will also tend to have higher wage rate, and then higher prices. Assuming the prices of tradable goods is aligned across countries, higher prices of nontradable goods will appreciate real exchange rate. The above is based on the following two assumptions. The first assumes that real exchange rates appreciate when productivity gains the higher in the tradables sector. The second assumes that productivity gains in the tradables sector should be mainly responsible for economic growth. Then it is speculated that real exchange rates will be appreciated with stronger economy. The aim of this paper is to test these two assumptions and the relationship between real exchange rates and economic growth. By firstly examining the relationship between real exchange rates and economic growth, results support the hypothesis. Secondly, we need to test the two assumptions. Our model involves productivity factors and demand factors which may affect real exchange rates. By dividing sectors by two ways, DEA analysis is used to produce total factor productivity with constant returns to scale and variable returns to scale under these two sectors.Estimated results indicate that,1) No matter for economic growth or real exchange rate appreciation, technical efficiency of nontradable sector is more important than that of tradable sector, which deviates from the premise of B-S hypothesis. That’s why our data cannot support B-S hypothesis;2) Technical improvements of the primary industry and the tertiary industry contributes more than the secondary industry. Objectively, the secondary industry needs huge inputs of capital, and our data also shows that its growth mostly results from the growth of capital input;3) Generally, the power of our economic growth is capital input, rather than productivity growth. Especially, capital input of nontradable sector is more important.