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Original Articles

Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA

Pages 507-510 | Published online: 15 Aug 2006
 

Abstract

In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-à-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-à-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.

Notes

1 For other recent studies, see Bahmani-Oskooee and Ratha (Citation2004), Narayan (Citation2004), Upadhyaya and Dhakal (Citation1997), Rahman et al. (Citation1997), Nachane and Ranade (Citation1998), Baluswar et al. (Citation1996) and Arora et al. (Citation2003).

2 For advantages of the ARDL technique, see Narayan and Narayan (Citation2005a, Citation2005b); and Narayan and Smyth (Citation2004).

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