Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data

Rasmus Fatum, Runjuan Liu (), Jiadong Tong () and Jiayun Xu ()
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Runjuan Liu: University of Alberta
Jiadong Tong: Nankai University
Jiayun Xu: Tsinghua University

No GRU_2016_004, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: The premise of beggar-thy-neighbor policies and currency wars is that currency depreciations lead to export growth. This premise, however, is far from validated as the existing economic literature largely either fails to find significant trade flow effects of currency fluctuations or finds that these effects are only minor. We revisit the question of whether currency fluctuations are systematically associated with trade flows using rich and unique firm level Chinese customs data on China-US trade over the 2000 to 2011 period that allows us to consider firm involvement in processing trade and firm dynamics in both export and import markets. Our firm-level based estimation of trade elasticities suggest that the China-US trade balance strongly responds to changes in the CNY/USD rate. This finding is particularly pronounced when we distinguish between ordinary and processing firms. Our results thus suggest that the influence of exchange rates on trade flows is stronger than previously thought and add insights to the policy debate on beggar-thy-neighbor policies and currency wars by, at least in principle, validating the underlying premise of such policies.

Keywords: Exchange Rate Changes; Trade Balance; Processing Trade; Firm Dynamics (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Pages: 36 pages
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Published in Journal of International Economics, Volume 115C, pp 16-29

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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232016-004%20Rasmus.pdf (application/pdf)

Related works:
Journal Article: Beggar thy neighbor or beggar thy domestic firms? Evidence from 2000 to 2011 Chinese customs data (2018)
Working Paper: Beggar Thy Neighbor or Beggar Thy Domestic Firms? Evidence from 2000-2011 Chinese Customs Data (2018)
Working Paper: Beggar thy neighbor or beggar thy domestic firms? evidence from 2000-2011 Chinese customs data (2015)
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