Hongjin Xiang, Zheng Zhan, Mingyong Lai
Author information
a School of Economy & Trade, Hunan University, Changsha 410079, China
b School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
c School of Economy & Trade, Hunan University, Changsha 410079, China
E-mail: xhjin2006@163.com (Hongjin Xiang), laimingyong@126.com (Mingyong Lai)
Abstract
This paper examines how Chinese RMB appreciation affects China and its competitor’s exports to the third market at industry level. We develop a two-country competition model to analyze the trade destruction effect and trade diversion effect of RMB appreciation. The theoretical analysis shows that the appreciation of RMB has negative impacts on China’s exports and positive impacts on its competitor’s exports. We then empirically test how the appreciation of RMB to the US dollar affects China’s and India’s textiles and apparel exports to the US from 1995Q1 to 2008Q4. The empirical results show that an 1% appreciation of RMB to US dollar will reduce China’s exports of textiles & apparel to the U.S. by 2.63% and raise the India’s exports of textiles & apparel to the U.S. by 2.71%.
RMB appreciation , trade destruction effect , trade diversion effect , cointegration
Hongjin Xiang, Zheng Zhan, Mingyong Lai. The Trade Destruction Effect and Trade Diversion Effect of RMB Appreciation. Front Econ Chin, 2011, 6(3): 479‒493 https://doi.org/10.1007/s11459-011-0143-3
