The impact of the Chinese exchange policy on foreign trade with the European Union

Vol. 37 No. 4 (2017)

Oct-Dec / 2017
Published February 26, 2020
PDF-English
PDF-English

How to Cite

Cardoso, Ana, and António Portugal Duarte. 2017. “The Impact of the Chinese Exchange Policy on Foreign Trade With the European Union”. Brazilian Journal of Political Economy 37 (4):870-93. https://doi.org/10.1590/0101-31572017v37n04a12.

The impact of the Chinese exchange policy on foreign trade with the European Union

Ana Cardoso
GEMF (Grupo de Estudos Monetários e Financeiros), CeBER (Centre for Business and Economics Research), and Faculty of Economics, Universidade de Coimbra,
António Portugal Duarte
GEMF (Grupo de Estudos Monetários e Financeiros), CeBER (Centre for Business and Economics Research), and Faculty of Economics, Universidade de Coimbra,
Brazilian Journal of Political Economy, Vol. 37 No. 4 (2017), Oct-Dec / 2017, Pages 870-893

Abstract

The aim of this paper is to analyze the impact of the Chinese foreign exchange policy on foreign trade with the European Union. After describing the importance of the exchange rate in an open economy and some of the methodologies employed to calculate its equilibrium value, we examine whether the Chinese competitiveness is due to the existence of misalignment (undervaluation) of its exchange rate, or rather, to other sources of competitiveness. For this purpose, we use a Vector Error Correction (VEC) model to estimate a long-run exports equation. The empirical results indicate that over the past few years, Chinese exports have benefited from an ‘unfair’ competitive advantage resulting from the manipulation of its currency value.

JEL Classification: C39; F10; O24.


Keywords: Competitiveness China European Union foreign trade misalignments real exchange rate.