United States‐china Trade at the Commodity Level and the Yuan‐dollar Exchange Rate

Abstract

"In 1978 when China began her economic reforms of moving toward a free market economy and trade liberalization, the trade balance between China and the United States was in favor of the United States in the magnitude of 600 million dollars. Over the 1978-2002 period, however, it has changed in favor of China such that in 2002 China had a surplus of 120 billion dollars against the United States. Over the same period, the Chinese yuan has depreciated almost fourfold. Is real depreciation of the yuan against the dollar a factor in the trade between the two countries? In this article, we employ data at the industry level (88 two- and three-digit industries) and recent advances in error-correction modeling to show that indeed the real yuan-dollar rate has played a significant role. This contradicts most previous research that used trade data at the aggregate level." ("JEL" F31, F32, F14) Copyright 2007 Western Economic Association International.

Assessing the Exchange Rate Sensitivity of U.S. Bilateral Agricultural Trade

“…More specifically, the first group adopts aggregate trade data in a framework of a two‐country model to examine the effects of exchange rate changes on the trade balance (e.g., Flemingham 1988; Mahdavi and Sohrabian 1993; Guptar‐Kapoor and Ramakrishnan 1999). By arguing that the empirical findings obtained from the first group could suffer from what is known as aggregation bias, the second group employs bilateral trade data between a country and its major trading partners to analyze the relationship between the trade balance and exchange rates (e.g., Wilson 2001; Arora et al 2003; Bahmani‐Oskooee and Goswami 2003; Bahmani‐Oskooee and Wang 2007).…”

The effects of the Yuan‐dollar exchange rate on agricultural commodity trade between the United States, China, and their competitors

“…The empirical model considered for the analysis is a time‐series cointegration/error‐correction model. Since the mid 1980s, the effects of exchange rate changes on trade have been extensively analyzed by numerous studies using the cointegration/error‐correction models (see Baek and Koo, ; Bahmani‐Oskooee and Hegerty, ; Bahmani‐Oskooee and Ratha, ; Bahmani‐Oskooee and Wang, ; Yun, ) because they lend themselves to estimate the short‐run and long‐run relationships between exchange rates and trade. However, studies that analyze the impact of exchange rate changes on trade using cointegration/error‐correction models have several shortcomings.…”

“…The ARDL model is preferred over the Engel‐Granger two‐step procedure because the latter does not account for short‐run dynamics (Ogazi, ), which have been proven important to include due to the recent advancement in literature (Bahmani‐Oskooee and Wang, ). Furthermore, unlike the Johansen cointegration technique, the ARDL allows for variables to have different optimal number of lags (Bahmani‐Oskooee and Wang, ; Ogazi, ; Pesaran et al., ). In contrast to other cointegration techniques, the ARDL has been shown to be more capable of identifying statistically significant cointegrating relationships in small samples (Narayan, ).…”

“…The first step in estimating the cointegration model is to determine the optimal lag lengths of variables. Following Bahmani‐Oskooee and Wang () and Pesaran and Pesaran (), we use the Akaike Information Criterion (AIC) for this determination. For example, the error‐correction model equation for cotton (Table ) has an optimal lag order of (2, 1, 2, 2, 2).…”

Exchange Rate Sensitivity of Australia's Trade Flows: Evidence From Industry Data*

“…Thus, following Haynes et al . (1986) and Bahmani‐Oskooee and Wang (2007) we added ln Y AUS as another exogenous variable to (1) and ln Y US as another exogenous variable to (2) and carried out the entire analysis again. There was no significant change in the results and conclusion of the paper.…”