Empirical Study On Effect Of Exchange Rate Changes On Guangdong's Import And Export

Since the People’s Bank of China’s announcement of the exchange rate reform on July21st,2005, RMB has begun to enter the track of appreciation, and has risen by23.33%by the end of August,2012. Again on April16th,2012, the central bank announced to broaden the floating range of RMB exchange rate against U.S dollar in the inter-bank spot market of foreign exchange. That is, the floating range changes from the initial0.3%to0.5%, and finally to1%, the RMB exchange rate becomes more flexible.Guangdong Province, as China’s largest foreign trade body, is a typical export-oriented economy, its total import and export volume has continuously ranked the first in China over the years, accounting for more than a quarter of the national total import and export volume. The exchange rate, as a key variable to adjust foreign trade, its impact on the import and export of Guangdong Province is more wider and deeper This article chooses Guangdong Province as the object of study, and will make an in-depth study on the impact of exchange rate fluctuations on its import and export.First the article summarizes the theory of the influence of the exchange rate fluctuations on the import and export. Then based on the descriptive analysis of the status quo of the RMB exchange rate and the import and export of Guangdong Province, the paper makes empirical study on the impact of the RMB exchange rate fluctuations on the import and export of Guangdong Province, from the short-term and long-term perspective respectively. The short-term analytical model is adapted from Cushmax, the bilateral exchange rate volatility and the third country exchange rate risk are both considered in the model to analyze the short-term impact of exchange rate fluctuations on the import and export of Guangdong Province. The study shows that the bilateral exchange rate volatility and the third country exchange rate risk both have significant impact on the import and export, but it’s not sure whether the effect of the third country exchange rate risk is positive or negative. Long-term analysis is based on the traditional theory of supply and demand analysis and the elasticity approach, and tests the long-term cointegration relationship between the real effective exchange rate and the import and export of Guangdong Province. The conclusions show that the appreciation of RMB will promote the growth of the import of Guangdong Province, but has significantly negative impact on its export. Finally, according to the conclusions of the empirical analysis, the paper puts forward some policy suggestions to improve the import and export of Guangdong Province from the perspective of the relevant government and foreign trade companies respectively.