Study On The Influence Of Fluctuating RMB Exchange Rate To China's Terms Of Trade

In international trade, exchange rate and terms of trade are two important indicators of relative price. Exchange rate reflects the ratio between the currencies of two countries; while terms of trade is a ratio of export price and import price of a country, reflecting the position of the country in international trade, the international competitiveness and the situation of national welfare. The relationship between exchange rate and terms of trade has been the focus problem in academic researches. Since the continued appreciation of RMB from July,2005, the influence of fluctuation of RMB exchange rate on terms of trade of China has become the focus of the community. Meanwhile, this is the main issue which will be discussed in this paper.The main objects of this paper are RMB nominal exchange rate and net barter terms of trade. Based on the research results from home and abroad scholars, through combining qualitative analysis and quantitative analysis, this paper investigates the influence of fluctuation of RMB nominal exchange rate on China's net barter terms of trade.This paper can be divided into the following parts. First, this paper reviews the relative literatures home and abroad to know about research results and future directions, which plays an important role in guiding the development of this paper. Then the author explains the probable influences of fluctuation of exchange rate on terms of trade from theoretical perspective. The fluctuations of exchange rate may affect terms of trade through changing export and import prices directly in the short term, or through affecting export and import volume, structure and production costs to change export and import prices indirectly in the medium term, while the influence becomes more complicated in the long term. After that, this paper reviews the revolution of China's RMB exchange rate since reform and opening up, and the changes of China's net barter terms of trade, which shows a significant downward trend during this period. Finally, author selects the data of terms of trade and main factors including RMB nominal exchange rate from 1985～2008, and does an empirical analysis. The result shows that RMB nominal exchange rate, export rebate rate and labor productivity play an important role in the change of China's terms of trade. Besides, China's RMB exchange rate and terms of trade are positively correlated, that is, appreciation of RMB exchange rate will improve China's terms of trade, while depreciation of RMB exchange rate will worsen China's terms of trade.