China Center for Economic Research (CCER)
National School of Development
No. E2010011 May 22, 2010
In 2005, China abated its fixed exchange rate against the U.S. dollar and began to appreciate the Renminbi (RMB). In this paper, I explore the effect of the appreciation of the RMB on imports to the U.S. from China by augmenting the gravity model with the exchange rate. Using an industrial panel data set during the period 2002 to 2008 and controlling for the endogeneity of the bilateral exchange rate, this extensive empirical analysis suggests that the appreciation of the RMB against the U.S. dollar significantly reduced imports to the U.S. from China. This finding is robust to a variety of econometric methods and to coverage in different periods.
JEL: F1, F2
Keywords: Exchange Rate, Pass-through, Bilateral Trade, Gravity Model
 I thank Robert Feenstra, Markus Eberhardt, Yiping Huang, Jack Hou, Mary Lovely, Feng Lu, Joaquim Silvestre, Yang Yao, Wei Tian, and Fan Zhang for their helpful comments. I thank the co-editor, Steve Yamarik, and two anonymous referees for their very helpful comments and suggestions. Financial support from the Sumitomo Foundation is gratefully acknowledged. I also thank Weidong Gao and Xu Zhang for their superb research assistance. However, all errors are my own.