I thank Dr. Zhihong Yu and three anonymous referees for many valuable comments. Any errors are my own responsibility.
Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter
Article first published online: 24 JUN 2013
© 2013 John Wiley & Sons Ltd
The World Economy
Volume 36, Issue 10, pages 1245–1260, October 2013
How to Cite
Thorbecke, W. (2013), Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter. World Economy, 36: 1245–1260. doi: 10.1111/twec.12096
- Issue published online: 3 OCT 2013
- Article first published online: 24 JUN 2013
China's trade surplus is entirely in processing trade. Processed exports are final goods produced using parts and components coming from supply chain countries. Many claim that because much of the value added of China's processed exports comes from other countries, the renminbi should not affect China's processed exports. To investigate these issues, this paper disaggregates processed exports into their two main categories, processing with imported materials (PWIM) exports and processing and assembly (PAA) exports. For PWIM exports, much of the value added comes from China while for PAA exports most of the value added comes from supply chain countries. DOLS results indicate that exchange rates in supply chain countries affect both types of exports and that the renminbi significantly affects PWIM exports, but not PAA exports. These results indicate that both the renminbi and exchange rates in supply chain countries matter for processed exports.