The Relationship between Product Complexity and Exchange Rate Elasticities: Evidence from the People’s Republic of China’s Manufacturing Industries

Willem Thorbecke, Chen Chen and Nimesh Salike
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Chen Chen: International Business School Suzhou, Xi’an Jiaotong–Liverpool University, Suzhou, People’s Republic of China
Nimesh Salike: International Business School Suzhou, Xi’an Jiaotong–Liverpool University, Suzhou, People’s Republic of China

Asian Development Review (ADR), 2021, vol. 38, issue 02, 189-212

Abstract: More complex products are less substitutable in international trade and may therefore have lower price elasticities. We investigate this issue using 960 types of manufactured exports from the People’s Republic of China (PRC) to 190 partner economies disaggregated at the Harmonized System 4-digit level. We measure complexity using Hidalgo and Hausmann’s (2009) product complexity index. We find that price elasticities are lower for more complex goods. These results imply that the PRC can reduce its exporters’ exposure to tariffs, trade wars, and exchange rate volatility by upgrading its export basket.

Keywords: exchange rate elasticities; PRC exports; product sophistication (search for similar items in EconPapers)
JEL-codes: F10 F13 F14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0116110521500037

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