FEDERAL RESERVE BANK OF SAN FRANCISCO
WORKING PAPER SERIES
Exchange-Rate Effects on China's Trade:
An Interim Report
Jaime Marquez
Board of Governors of the Federal Reserve System
John W. Schindler
Board of Governors of the Federal Reserve System
May 2006
Working Paper 2006-41
http://www.frbsf.org/publications/economics/papers/2006/wp06-41bk.pdf
The views in this paper are solely the responsibility of the authors and should not be
interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the
Board of Governors of the Federal Reserve System. This paper was produced under the
auspices for the Center for Pacific Basin Studies within the Economic Research
Department of the Federal Reserve Bank of San Francisco.
Board of Governors of the Federal Reserve System
International Finance Discussion Papers
Number 862
May 2006
Exchange-Rate Effects on China's Trade: An Interim Report
Jaime Marquez
and
John W. Schindler
NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate
discussion and critical comment. References in publications to International Finance Discussion Papers
(other than an acknowledgment that the writer has had access to unpublished material) should be cleared
with the author or authors. Recent IFDPs are available on the Web at www.federalreserve.gov/pubs/ifdp/.
Exchange-Rate Effects on China's Trade: An Interim Report
Jaime Marquez*
and
John W. Schindler
Abstract: Though China's share of world trade is comparable to that of Japan, little is known about the
response of China's trade to changes in exchange rates. The few estimates available suffer from two
limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the
estimation sample includes the period of China's transformation from a centrally-planned economy to a
market-oriented system. To address these limitations, this paper develops an empirical model explaining the
shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The
specifications control for foreign direct investment and for the role of imports of parts to assemble
merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period
during which most of China's decentralization occurred. The estimation results suggest that a ten-percent real
appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point.
The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.
JEL classifications: F41, C51,C52
Keywords: Renminbi, Foreign Direct Investment, Income Elasticity, Trade Shares, Automated
Specification.
* Corresponding author. E-mail address is [email protected]. The calculations are based on
PcGets; see Hendry and Krolzig (2001) and PcGive; see Doornik and Hendry (2000). We are grateful to
Dale Henderson for detailed comments on this paper. Also, comments on an earlier version of this paper
from David Bowman, Neil Ericsson, Joe Gagnon, Bill Helkie, and Steve Kamin are gratefully
acknowledged. We also thank participants at the Fall 2004 Midwest International Economics Group and
at the Federal Reserve Board's Workshop series for their observations. Finally, we thank Menzie Chinn
for pointing out key references and Koichiro Kamada for providing unpublished details on the paper by
Kamada and Takagawa (2005). The views in this paper are solely the responsibility of the authors and
should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System
or of any other person associated with the Federal Reserve System. This paper can be downloaded
without charge from the Social Science Research Network electronic library at http://www.ssrn.com/ .
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Figure 1
Export Shares in World Exports
Import Shares in World Imports
Percent
Percent
20
20
United States
United States
Japan
16
16
12
12
8
China
Japan
8
4
4
China
1950
1960
1970
1980
1990
2000
0
1950
1960
1970
1980
1990
2000
0
Exports by Ownership
Trade as Percent of Global Total*
Percent
$ Billions
6
State Owned Enterprises
Joint Ventures
Foreign-Owned
Other
5
China
240
180
4
Mexico
3
120
Korea
2
Taiwan
60
1
Brazil
1980
1985
1990
1995
2000
0
1995
1999
2004
0
*Sum of exports and imports; dollar values.
Assembly Trade
WTO Accession
$ Billions
$ Billions
350
WTO accession
300
500
250
Exports of
Assembled Goods
600
400
200
300
150
Exports
200
100
Imports
Imported Components
for Assembly
1993
1995
1997
1999
2001
2003
50
0
1991
2
1996
2001
100
0
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dv cruglqdu|* dqg zh iroorz wkhlu frqyhqwlrq1 E| wudgh lq frpsrqhqwv iru dvvhpeo|
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ydoxh ri zruog phufkdqglvh wudgh h{foxglqj Fklqd*v wudgh1 Gdwd iru Fklqd*v h{sruwv
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5333 wr hljkw shufhqw e| 5337 +jxuh 5,1 Lq whupv ri wkh frpsrvlwlrq ri h{sruwv/ wkh
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ruglqdu| surgxfwv1 Iru lpsruwv/ wkh gdwd vkrz dq lqfuhdvh iurp wkuhh shufhqw lq 5333
wr qhduo| vhyhq shufhqw e| wkh hqg ri 5337 +jxuh 6,1 Lq whupv ri wkh frpsrvlwlrq ri
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Percent
8
Total
Chineses Export Shares
7
6
Processing and
Assembly
5
4
3
2
Ordinary
1
1995
2000
2005
Iljxuh 5= Vkduhv ri Fklqd*v H{sruwv lq Uhvw ri Zruog H{sruwvVhohfwhg Fdwhjrulhv
20
7
Percent
Chinese Import Shares
6
Total
5
4
Ordinary
3
Processing and
Assembly
2
1
Oil
1995
2000
2005
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Uhdo Hhfwlyh H{fkdqjh Udwhv Rxu dqdo|vlv xvhv wkh LPI*v phdvxuh ri wkh
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ghsuhfldwhg vlqfh wkhq +jxuh 7,1
21
110
105
100
95
90
85
80
75
70
65
1993
1995
1997
1999
2001
2003
2005
Iljxuh 7= LPI*v Phdvxuh ri Fklqd*v Uhdo Hhfwlyh H{fkdqjh Udwh
915
Hfrqrplf Dfwlylw|
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d vlqjoh f|folfdo frqwudfwlrq1
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22
150
Index of Industrial Production − China
100
50
1993
1995
1997
1999
2001
2003
2005
2003
2005
Index of Industrial Production − World excluding China
100
90
80
1993
1995
1997
1999
2001
Iljxuh 8= Phdvxuhv ri Lqgxvwuldo Surgxfwlrq
916
Iruhljq Gluhfw Lqyhvwphqw
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ri jxuh 9 vkrzv wkdw iruhljq gluhfw lqyhvwphqw dyhudjhv derxw '7 eloolrq shu prqwk
wkrxjk wklv dyhudjh lv dffrpsdqlhg e| odujh xfwxdwlrqv1 Ehfdxvh ri wkh odfn ri gdwd iru
wkh dvvrfldwhg lqlwldo ydoxh ri iruhljq fodlpv/ zh hvwlpdwh wkh iruhljq gluhfw0lqyhvwphqw
srvlwlrq e| fxpxodwlqj wkh dvvrfldwhg rzv> wkh uhvxowlqj hvwlpdwh xqghuvwdwhv wkh
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plqg/ wkh plggoh sdqho vkrzv wkdw rxu hvwlpdwh ri wkh vwrfn ri iruhljq lqyhvwphqw lq
Fklqd kdv jurzq vwhdglo| vlqfh 4<<:/ h{fhhglqj '733 eloolrq e| wkh plggoh ri 53381
Wr jhw d vhqvh ri wkh uhodwlyh lpsruwdqfh ri wklv vwrfn/ zh vfdoh lw e| zruog lpsruwv
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Fklqd1
10000
Foreign Direct Investment − Monthly flows − Not Seasonally Adjusted
(millions of US dollars per month)
7500
5000
2500
1997
400
1998
1999
2000
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
2003
2004
2005
Cumulated Foreign Direct Investment
(billions of US dollars)
200
1997
4
1998
1999
2000
Cumulated Foreign Direct Investment Relative to World Trade ex. China
(percent)
2
1997
1998
1999
2000
2001
2002
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:
Hfrqrphwulf Dqdo|vlv
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Wkh uhdvrq iru wkh eulhi vdpsoh shulrg lv wkh odfn ri prqwko| gdwd rq iruhljq gluhfw
24
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lqyhvwphqw1
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43
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44
Zh xvh Sdfndjh yhuvlrq 4135 ri SfJhwv zlwk lwv ghidxow vhwwlqjv1
25
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:14
:1414
Sdudphwhu Hvwlpdwhv
Lpsruwv
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uhqplqel orzhuv/ lq wkh orqj0uxq/ wkh dvvrfldwhg lpsruw vkduh +wrs sdqho ri wdeoh 4,> wklv
hhfw lv vwdwlvwlfdoo| glhuhqw iurp }hur dqg urexvw wr odj ohqjwk1 Wkrxjk wklv uhvxow
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lpsruwv gxulqj wkh vdpsoh shulrg dqg wkhvh hqwhusulvhv pljkw kdyh rshudwhg lq dq
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wkh w|sh ri vxevwlwxwlrq hhfw wkdw dq h{fkdqjh0udwh fkdqjh lv h{shfwhg wr lqgxfh
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Csp ? f1
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i
U
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uxoh rxw wkh fdvh lq zklfk rxu uhvxowv duh lqfrqvlvwhqw zlwk wkhru|1
Wkh hylghqfh dovr uhyhdov wkdw pryhphqwv lq Fklqhvh lqgxvwuldo surgxfwlrq duh
lpsruwdqw lq h{sodlqlqj pryhphqwv lq wkhvh lpsruwv= wkh lqfrph hhfw lv srvlwlyh/
vwdwlvwlfdoo| vljqlfdqw/ dqg urexvw wr odj ohqjwk1 Ilqdoo|/ wkh uhvxowv lqglfdwh wkdw
dq lqfuhdvh lq iruhljq gluhfw lqyhvwphqw udlvhv Fklqd*v lpsruwv ri ruglqdu| surgxfwv
vxjjhvwlqj wkdw iruhljq gluhfw lqyhvwphqw +IGL, kdv frpsohphqwdulw| hhfwv1 Lq whupv
26
1997-2004
Lags
13
Real
Income
0.028
(0.0092)
Table 1: Import Share of Ordinary Products - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Periods
Real
Lagged
Parameter Stability (a)
Exch. Rate
FDI
Dep. Var.
SER
CHW1
CHW2
-0.014
0.456
0.669
0.135
na
0.361
(0.0055)
(0.1448)
(0.0741)
Properties of Residuals (b)
Normality Independ. Homosked.
0.694
0.846
0.964
6
0.035
(0.0019)
-0.014
(0.0013)
0e
0.163
(0.13)
0.185
0.055
0.084
0.167
0.710
0.830
3
0.024
(0.0024)
-0.008
(0.0016)
0.164
(0.0435)
0.183
(0.0688)
0.160
0.119
0.065
0.104
0.529
0.064
1
0.023
(0.0025)
-0.007
(0.0016)
0.172
(0.0452)
0.193
(0.0705)
0.164
0.041
0.062
0.386
0.637
0.134
0
0.024
(0.0024)
0e
0.138
(0.04349)
--
0.172
0.033
0.014
0.544
0.394
0.433
13
0.085
(0.02)
-0.040
(0.01)
--
0.870
(0.04)
0.165
0.695
0.790
r
0.290
0.450
6
0.036
(0.002)
-0.050
(0.005)
--
0.370
(0.09)
0.230
r
0.030
r
0.220
0.180
3
0.032
(0.0016)
-0.004
(0.004)
--
0.360
(0.08)
0.210
r
0.040
r
0.190
0.500
1
0.030
(0.0012)
-0.040
(0.003)
--
0.240
(0.06)
0.210
r
0.020
0.030
r
0.150
0.027
-0.036
--0.250
r
0.210
0.270
(0.001)
(0.003)
standard errors in parentheses; r means rejects null hypothesis; na means that sample is not long enough for test
0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
r
0.680
1994-2004
0
27
ri wkh w ri wkh htxdwlrq/ wkh vshflfdwlrq zlwk 46 odjv rhuv wkh ehvw ghvfulswlrq ri wkh
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ri sdudphwhu vwdelolw|1
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uhmhfwlrq ri sdudphwhu frqvwdqf| dqg uhvlgxdov wkdw duh qrw zklwh qrlvh1 Vxfk d ghjud0
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vljqlfdqw/ dqg txlwh urexvw wr wkh qxpehu ri odjv1 Ilqdoo|/ dq lqfuhdvh lq iruhljq0gluhfw
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vwurqj iru vkruw odjv1 Lq rwkhu zrugv/ IGL lv jhqhudwlqj vxevwlwxwlrq hhfwv lq wkh vhqvh
wkdw iruhljq upv lq Fklqd surgxfh wkh sduwv wkdw zrxog rwkhuzlvh eh lpsruwhg1 Lq
whupv ri wkh w ri wkh htxdwlrq/ wkh whvw uhvxowv lqglfdwh wkdw wkh uhvlgxdov duh zklwh
qrlvh dqg wkdw rqh fdqqrw uhmhfw wkh k|srwkhvlv ri sdudphwhu vwdelolw|1
H{whqglqj wkh vdpsoh shulrg dqg h{foxglqj iruhljq gluhfw lqyhvwphqw +erwwrp sdqho
ri wdeoh 5, uhyhdov d ghjudgdwlrq ri wkh vwdwlvwlfdo uholdelolw| ri wkh htxdwlrqv1 Zlwk
wklv frqvlghudwlrq lq plqg/ wkh hvwlpdwhg lqfrph hhfwv duh frpsdudeoh wr wkrvh edvhg
28
1997-2004
1994-2004
Lags
13
Table 2: Import Share for Parts and Components - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Dates
Real
Real
Lagged
Parameter Stability (a)
Income
Exch. Rate
FDI
Dep. Var.
SER
CHW1
CHW2
0.532
0.015
-0.030
0e
0.622
0.079
na
(0.0021)
(0.0098)
(0.07)
Properties of Residuals (b)
Normality Independ. Homosked.
0.351
0.527
0.704
6
0.015
(0.001)
0.003
(0.0016)
0e
0.600
(0.071)
0.080
0.420
0.016
0.920
0.160
0.406
3
0.013
(0.0013)
0.004
(0.0012)
0e
0.465
(0.0659)
0.078
0.180
0.059
0.960
0.050
0.782
1
0.016
(0.001)
0.002
(0.0008)
-0.093
(0.0174)
0e
0.078
0.143
0.858
0.180
0.954
0.433
0
0.016
(0.00109)
0.002
(0.00078)
-0.090
(0.0182)
--
0.081
0.534
0.154
0.393
0.264
0.955
13
0.013
(0.001)
-0.006
(0.002)
--
0.380
(0.07)
0.070
0.110
0.120
0.920
0.280
0.590
6
0.012
(0.0008)
-0.005
(0.0014)
--
0.077
(0.05)
0.085
0.070
0.030
0.550
0.750
0.650
3
0.012
(0.0008)
-0.004
(0.0014)
--
0.210
(0.07)
0.080
r
0.020
0.420
0.250
0.420
1
0.011
(0.0008)
-0.003
(0.0015)
--
0.290
(0.06)
0.076
r
0.080
0.320
0.280
0.780
r
0.700
r
r
0.570
0.011
-0.002
--0.0845
(0.001)
(0.0011)
standard errors in parentheses; r means rejects null hypothesis; na means that sample is not long enough for test
0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
0
29
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vshflfdwlrqv zlwk vl{ ru pruh odjv1 Iru wkuhh ru ihzhu odjv/ krzhyhu/ wkh hylghqfh
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sruwv wkrxjk wkhvh vshflfdwlrqv duh qrw vxlwdeoh fkdudfwhul}dwlrqv ri wkh gdwd ehfdxvh
ri wkhlu sdudphwhu lqvwdelolw|1 Vhfrqg/ lqfrph hhfwv duh srvlwlyh dqg vljqlfdqw iru
45
Qrwh wkdw wkh hvwlpdwlqj htxdwlrq h{foxghv/ e| ghvljq/ wkh vkduh ri lpsruwv ri sduwv dqg dvvhpeo|
surgxfwv1 Wkh uhdvrq iru wklv ghflvlrq lv wkdw wkh gdwd iru h{sruwv ri ruglqdu| surgxfwv h{foxgh/ e|
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30
1997-2004
1994-2004
Lags
13
Table 3: Export Share of Ordinary Products - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Period
Parameter Stability (a)
Foreign
Real
Lagged
Income
Exch. Rate
FDI
Dep. Variable
SER
CHW1
CHW2
0.055
-0.033
0e
0.659
0.133
na
0.020
(0.009)
(0.009)
(0.1)
Properties of Residuals (b)
Normality Independ. Homosked.
0.390
0.560
0.060
6
0.049
(0.0075)
-0.027
(0.007)
0e
0.550
(0.09)
0.128
0.132
0.020
0.480
0.550
0.390
3
0.096
(0.042)
-0.056
(0.0312)
0e
0.875
(0.0728)
0.115
0.216
0.849
0.480
0.633
0.398
1
0.028
(0.0053)
0e
0e
0.864
(0.596)
0.131
0.025
0.239
0.192
0.029
0.496
0
0.017
(0.00069)
0e
0.125
(0.03201)
--
0.205
r
r
0.898
r
0.247
13
0.020
(0.002)
0e
--
0.840
(0.065)
0.153
0.100
0.290
0.730
0.170
0.240
6
0.063
(0.011)
-0.024
(0.007)
--
0.620
(0.086)
0.156
r
0.088
0.120
0.680
0.860
3
0.070
(0.013)
-0.024
(0.0075)
--
0.658
(0.069)
0.149
0.025
0.336
0.680
0.210
0.370
1
0.058
(0.011)
-0.0185
(0.0067)
--
0.594
(0.06)
0.166
r
0.300
0.120
r
0.110
0
0.040
(0.0055)
-0.011
(0.0034)
--
--
0.217
r
0.030
0.210
r
0.020
standard errors in parentheses; r means rejects null hypothesis; na means that sample is not long enough for test
0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with a 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
31
1997-2004
1994-2004
Lags
13
Foreign
Income
0.050
(0.008)
Table 4: Export Share for Parts - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Periods
Parameter Stability (a)
Real
Imports of Parts
Lagged
Exch. Rate
& Assmbly
FDI
Dep. Variable
SER
CHW1
CHW2
-0.031
0.975
0e
0.400
0.080
na
0.360
(0.006)
(0.17)
(0.11)
Properties of Residuals (b)
Normality Independ. Homosked.
0.350
0.950
0.840
6
0.011
(0.0046)
-0.006
(0.0039)
1.269
(0.072)
0.083
(0.0213)
0.222
(0.0499)
0.083
0.015
0.070
0.309
0.110
0.580
3
0e
0.010
(0.0018)
1.165
(0.1406)
0.228
(0.0418)
0.658
(0.0701)
0.091
r
r
0.404
0.293
0.481
1
0e
0.009
(0.0011)
1.099
(0.0992)
0.186
(0.0292)
0.504
(0.0684)
0.098
r
r
0.451
0.823
0.864
0
0e
0e
1.058
(0.0667)
0.157
(0.0193)
--
0.131
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r
0.520
0.404
0.471
13
-0.060
(0.16)
0.052
(0.144)
-4.235
(13.31)
--
1.030
(0.057)
0.109
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0.570
0.650
0.060
0.220
6
0.047
(0.0097)
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(0.0054)
0.880
(0.2)
--
0.604
(0.077)
0.109
0.123
0.098
0.570
0.100
0.030
3
-0.087
(0.083)
0.002
(0.053)
3.990
(2.8)
--
1.060
(0.06)
0.117
0.360
0.240
0.410
0.090
0.050
1
0.058
(0.025)
0.001
(0.009)
0.230
(0.63)
--
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(0.11)
0.127
r
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0.460
0.130
0.090
0
0.040
(0.003)
0e
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(0.11)
--
--
0.155
r
r
0.170
r
0.040
standard errors in parentheses; r means rejects null hypothesis; na means that sample is not long enough for test
0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with a 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
32
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INCOME ELASTICITIES
0.5
Ordinary imports*
EXCHANGE−RATE ELASTICITIES
Ordinary imports*
2.5
0.0
2.0
−0.5
1.5
1.0
−1.0
log−linear
* For 6 lags; the horizontal line corresponds to
−1.5
long−run estimates from log−linear model with 13 lags
1995
2000
2005
1995
0.5
2000
2005
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2.5
Parts & Assembly Imports**
0.0
2.0
−0.5
log−linear
1.5
−1.0
1.0
−1.5
1995
2000
** For 1 lag; the horizontal line corresponds to
long−run estimates from log−linear model with 6 lags
1995
2005
2000
2005
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PARTS & ASSEMBLY
ORDINARY
Income Elasticity
AGGREGATE
Income Elasticity
Income Elasticity
2
2
2
1
1
1
1995
2000
2005
1995
2000
2005
1995
2000
2005
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0.0
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−1.0
1995
2000
2005
1995
2000
2005
1995
2000
2005
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37
1997-2004
1994-2004
Lags
13
Domestic
Income
0.105
(0.04)
Table 5: Aggregate Import Share - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Period
Parameter Stability (a)
Real
Lagged
Exch. Rate
FDI
Dep. Variable
SER
CHW1
CHW2
-0.051
1.170
0.870
0.160
r
0.670
(0.026)
(0.89)
(0.08)
Properties of Residuals (b)
Normality Independ. Homosked.
0.750
0.020
0.160
6
0.046
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-0.010
(0.001)
0e
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(0.05)
0.210
0.020
0.095
0.010
0.680
0.850
3
0.045
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0e
0e
0.200
0.026
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0.250
0.490
0.110
1
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0e
0e
0.220
0.220
0.080
0.060
0.210
0.140
0
0.047
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0e
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0.214
0.030
0.020
0.450
0.270
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13
0.146
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0.820
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0.19
0.130
0.100
0.730
0.320
0.800
6
0.040
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--
0.020
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0.295
r
0.040
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0.250
0.950
3
0.040
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-0.041
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0.140
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0.29
r
0.020
r
0.350
0.940
1
0.039
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0.180
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0.284
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0.080
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0.650
0.790
0
0.038
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--
0.298
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0.310
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0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with a 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
38
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EXCHANGE−RATE ELASTICITIES
5 Ordinary Exports*
0
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4
−1
3
−2
2
1
1995
5
−3
* For 3 lags; the horizontal line corresponds to
long−run estimates from log−linear model with 13 lags
2000
2005
Exports of Parts and Assembly**
1995
0
2000
2005
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4
−1
3
−2
2
log−linear
−3
1
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1995
2000
2005
1995
2000
2005
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ORDINARY
5
PARTS & ASSEMBLY
AGGREGATE
Income Elasticity
Income Elasticity
5
5
Income Elasticity
4
4
4
3
3
3
2
2
2
1
1
1995
2000
2005
1
1995
Exchange−rate Elasticity
2000
2005
1995
Exchange−rate Elasticity
−1
−1
−1
−2
−2
−2
−3
−3
−3
1995
2000
2005
1995
2000
2000
2005
Exchange−rate Elasticity
2005
1995
2000
2005
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Lags
13
1997-2004
1994-2004
se
Foreign
Income
0.130
(0.02)
Table 6: Aggregate Export Share - Long-run Coefficients
Sensitivity to Dynamic Specification and Sample Period
Parameter Stability (a)
Real
Lagged
Exch. Rate
FDI
Dep. Variable
SER
CHW1
CHW2
-0.078
0e
0.570
0.210
r
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(0.08)
Properties of Residuals (b)
Normality Independ. Homosked.
0.540
0.760
0.300
6
0.120
(0.02)
-0.068
(0.016)
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(0.086)
0.230
0.610
0.160
0.420
0.700
0.030
3
0e
0.410
(1.47)
6.100
(20.5)
0.988
(0.04)
0.190
0.370
0.750
0.140
0.780
0.400
1
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0.850
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0.228
0.300
0.020
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0.390
0.240
0
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0.290
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--
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r
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13
0.149
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--
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0.230
0.050
0.190
0.760
0.350
0.770
6
0.157
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-0.036
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--
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0.247
0.070
0.200
0.100
0.340
0.190
3
0.120
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0.260
0.040
0.030
0.030
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0.020
1
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0.290
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0
0.098
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--
--
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r
r
r
r
r
standard errors in parentheses; r means rejects null hypothesis; na means that sample is not long enough for test
0e: Selection algorithm excludes this variable for lack of statistical significance
(a): CHW1: Chow test with a 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
(b): significance level needed to reject the associated null hypothesis. Entries in bold denote rejection at the 5% significance level.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
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Trade in Ordinary Products
0.00
Trade in Parts and Assembly Products
0.00
Response of Export Share (percentage points)
Response of Export Share (percentage points)
−0.01
−0.01
−0.02
−0.02
−0.03
−0.03
−0.04
−0.04
1997
1999
2001
2003
2005
0.005
1997
1999
2001
2003
2005
0.005
0.000
0.000
Response of Import Share (percentage points)
Response of Import Share (percentage points)
−0.005
−0.005
−0.010
−0.010
−0.015
−0.015
1997
1999
2001
2003
2005
1997
1999
2001
2003
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dq dv|pphwu| lq wkh wuhdwphqw ri wudgh lq sduwv zlwk pryhphqwv lq lpsruwv ri sduwv
lv lqirupdwlyh iru suhglfwlqj h{sruwv ri sduwv exw qrw wkh rwkhu zd| durxqg1
49
Table 7: Automated Granger Causality Tests -- 1997-2004
Equation
Lag Structure
5
6
1
2
3
4
0.4714
(0.0691)
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0.3432
(0.0931)
0e
--
0e
--
Tests
7
8
9
10
11
12
13
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0.4129
(0.0725)
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e 0.221
-- (0.0777)
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0e
--
0.2979
(0.1312)
0e
--
p-value
Dep. Var: Imports of Parts
Own lags
std. error
Exports of Parts
std. error
CHW1
CHW2
normality
Serial Indep.
Homoskedast.
0.1088
0.0736
0.9406
0.0372
0.9952
CHW1
CHW2
normality
Serial Indep.
Homoskedast.
0.2288
0.2304
0.0153
0.5714
0.261
SER=0.09337
Dep. Var: Exports of Parts
Own lags
std. error
Imports of parts
std. error
0e
--
0.2271 0e
(0.1131) --
0.0868
0.3606
(0.0929) (0.1424)
0e
--
-0.4196
(0.1623)
SER=0.1103
0e: Selection algorithm excludes this variable for lack of statistical significance
CHW1: Chow test with a 0.5 sample split. CHW2: Chow test with a 0.9 sample split.
Normality: Jarque-Bera test; Serial independence: Autoregressive test; Homoskedasticity: ARCH
50
0e
--
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51
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52