| Balassa-Samuelson theory claimed that the rapid growth of economy in a country brought a quick improvement in productivity of the country’s tradable sector, which affected the level of the sector wages. Due to the free movement of labor, the untradeable sector had to raise the wage to ensure the labor that itself required. Which made the overall level of prices be improved, ultimately causing a rise in the real exchange rate. Since the reform and opening-up, the economy of China grows fast, which brings the productivity of tradable sector increases rapidly, and the same time, the two sectors’wage level rises quickly, but the real exchange rate of RMB doesn’t rise, which against the Balassa-Samuelson theory. The article makes some adjustment on the Balassa-Samuelson effect model based on the national conditions of China.The terms of trade measures the situation of foreign trade, and has an effect on the real exchange rate of RMB, at the same time, the rapid growth of foreign exchange reserves affects the real exchange rate of RMB through the foreign exchange market.The article build the time series of the tradable sector and the non-tradable sector labor productivity ratio, the ratio of the two-sector wage levels, the coefficients of the terms of trade and foreign exchange reserves. At first, making an empirical analysis of the real exchange rate of RMB by the data of1979-2010years. Then defining the analysis by the reform of China’s exchange rate system in1994., found out that due to the different stages of each variables, the impact on the real exchange rate of RMB is different, which affected by the development of variables and the national policy.The article argues that the reform of the exchange rate will help ease the pressure on the appreciation of RMB, at the same time, the country should speed up the development of the tertiary industry, reduced labor productivity gap between the two departments, in order to ease the pressure of RMB appreciation. |
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