An Empirical Analysis On The Impact Of Exchange Rate Change On Zhejiang's International Trade

The international trade of Zhejiang Province has been confronted with a great challenge because of the constant appreciation of RMB and other economic shocks at home and abroad in the recent years. With qualitative and quantitative methods, this paper has mainly researched on the impact of exchange rate change on Zhejiang's international trade by using classical theories, e.g. elasticity approach and incomplete exchange rate pass-through, etc. Based on the relative data from January 2005 to April 2009, this paper applies vector auto-regression model (VAR), Johansen co integration analysis, Granger causality test, impulse response function and variance decomposition to portray the dynamic correlations between exchange rate change and Zhejiang's international trade flow. It concludes that a long-term co integration relationship and J-Curve Effect exist between exchange rate change and Zhejiang's international trade flow and that connected effect exists between export and import, and "Marshall-Lerner condition" is not satisfied, which means the complicated economic shocks at home and abroad have been the main influences to Zhejiang international trade flow but exchange rate.Besides, the quantitative impact of exchange rate change on the structure of Zhejiang's international trade is also analyzed in generalities, and the result indicates that the appreciation of RMB has been in favor of the optimization of the trade structure, because it has enhanced the proportion of manufactured goods in export flow and the proportion of primary products in import flow.Finally some suggestions are presented according to the results of the analysis, including the appreciation of RMB should be put in perspective, importation should be encouraged to spur exportation, trading space should be expanded so that exchange rate risk can be reduced, and the trade structure should be further optimized.