Abstract
ABSTRACTWhat is the link between trade balance and savings rate? We apply the two-step differenced generalized method of moments technique to explore the linear and nonlinear relationships among trade balance, savings rate, and real exchange rate for China and its 102 trading partners during the period 1995–2014. Our empirical results reveal that Reminbi depreciation has different effects on China’s bilateral trade balance depending on its high- and low-income trading partners and that the savings rate has a nonlinear effect on China’s bilateral trade balance. When the difference in savings rate between China and its trading partners is smaller, an increase in China’s savings rate improves its bilateral trade balance with those trading partners, but there is an insignificant or negative effect on its trade balance for a larger gap in the savings rate.
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