The Balassa-samuelson Effect Of Rmb Exchange Rate

With China's rapid economic development for decades,its currency value has attracted more and more eyeballs from the world over.The exchange rate of RMB is always a hot topic in the world economic,political and academic fields.Among the studies about real exchange transition trend during a country's high growth period,"Balassa-Samuelson effect" is the most influent theory from the standpoint of labor productivity factor.According to"Balassa-Samuelson effect",rapid economic growth country is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and non-tradable sectors between two countries.Since the effect is not suit for each country,this thesis is to discuss whether it is suitable in China.This thesis finds out that:the"re-relative"productivity of tradable and non-tradable departs between China and the US has increased evidently from 1990 to 2006,while the real exchange rate between China and US has not shown the case,which means that theBalassa-Samuelson effect is not suitable from the intuitive experience.Thus,we use ADF Unit Root test and J-J Co-integration test to start an empirical analysis and derive a conclusion:In China,the real exchange rate does not have a stable relationship with the "re-relative"productivity between China and the US.To make analysis deeply,we use Engle&Granger two steps and Johansen Co-integration method to further test the two conditions of the theory and both of them turn out to be false,which means that in China,One price law of tradable commodities does not have a certain relationship with the real exchange,and the changes of relative productivity between tradable and non-tradable departments do not certainly lead to the non-tradable commodities'price changes.These two reasons directly lead to"Balassa-Samuelson effect" rejection in China.In the end,we make some suggestions about how to keep competitive when the real exchange rate appreciates.