The Effect of Real Effective Exchange Rate Changes on China’s Import Trade Structure

Abstract

The real effective exchange rate (REER) has a double effect on the value of imports. The appreciation of the real effective exchange rate directly reduces the price of imports and expands the quantity of imports, but the increase in the quantity of imports will stimulate the rise of import prices and indirectly restrain the quantity of imports. Using ADF unit root test, cointegration analysis and Granger’s causality test, this paper empirically studies the relationship between the real effective exchange rate of RMB and the consumption trade imports, total trade imports and import trade structure from 1997 to 2019. The conclusion shows that the appreciation of the real effective exchange rate of RMB will reduce the total trade imports and increase the proportion of consumption trade imports, but the effect of that on consumption trade imports is not clear. Results of this study provide evidence that the price effect of RMB’s real effective exchange rate is greater than the income effect of GDP growth. The price elasticity is 0.96 times the income elasticity for consumption trade imports, 2.45 for total trade imports, and 15.24 times for import trade structure.