Short-term static analysis of the influence of exchange rate changes on terms of trade
The most frequently cited elastic analysis method of Marshall-Lerner condition is the influence of exchange rate changes on the terms of trade, which examines whether the terms of trade have improved or deteriorated under the condition of exchange rate depreciation. The concept of elasticity is used because the devaluation of currency changes the prices of import and export commodities expressed in local currency or foreign currency at the same time, and the improvement of terms of trade depends on whether the increase (decrease) of local currency (foreign currency) of export commodities is greater than or less than that of import commodities. When a country's currency depreciates, the price of its export commodities can remain unchanged, and of course it can also rise. The depreciation of imported goods leads to the rise of local currency prices and the decline of demand. In order to maintain a certain market share, foreign exporters may lower the foreign currency prices of domestic imports. ηDX and ηDM are used to represent the price elasticity of import and export demand, and ηSX and ηSM are used to represent the price elasticity of import and export supply. In the case of exchange rate depreciation, the following conclusions can be drawn:
When η sx η sm >; When ηDX ηDM, exchange rate depreciation worsens a country's terms of trade;
When ηSX ηSM =ηDX ηDM, exchange rate depreciation has no effect on the terms of trade;
When η sx η sm
This elastic analysis method is a relatively static analysis method on the premise that the foreign exchange market is stable and other conditions remain unchanged. The so-called improvement of terms of trade usually refers to the increase of the price of the country's export commodities relative to the price of its import commodities, and vice versa. Its economic significance lies in whether the unit export commodities can be exchanged for more imported commodities than before. If so, it means that the terms of trade have improved, otherwise the terms of trade have deteriorated. The depreciation of exchange rate has undoubtedly become a means for many countries to promote exports and improve terms of trade under certain conditions. However, the improvement of terms of trade does not mean that a country's trade situation has improved. Similarly, exchange rate appreciation will reduce a country's terms of trade under certain conditions, but it cannot be concluded that a country's trade situation has deteriorated. The reason is that the change of terms of trade is the result of many forces that have an impact on China and other parts of the world, and the impact of these forces on China's net welfare cannot be determined by a single change of terms of trade, which also becomes a defect in short-term static analysis of the impact of exchange rate changes on terms of trade. Therefore, we will analyze the quantitative and structural effects of exchange rate changes on the basis of its price effect, so as to fully understand the impact of exchange rate changes on trade income conditions and unilateral factor terms of trade, and thus reveal a series of mechanisms behind exchange rate changes on terms of trade.
Long-term dynamic analysis of the influence of exchange rate changes on terms of trade
As mentioned above, the price effect of exchange rate changes will have a direct and rapid impact in the short term. However, under the condition of open economy, exchange rate, as an important economic variable, has become an important target variable for a country to regulate its economy. In terms of trade, it is not only reflected in seeking changes in import and export volume, but also needs to consider many factors such as trade structure, cost, welfare and overall situation.
In the short term, due to the time lag effect of information transmission and reaction, the quantitative effect of exchange rate changes through price changes will not appear immediately. After a certain period of adjustment, this effect can be fully displayed. Looking at the trade income condition (I), the calculation formula is I =(Px/PM )Qx, where Px and PM are the same terms of trade, and Qx stands for the export volume index, indicating the import volume based on exports. However, it is difficult to reflect the change of trade income simply from the change of commodity terms of trade (n), because the value of index I depends on the product of n and Qx. In addition, if the scale benefit of a country's export industry is obvious, the expansion of export volume will lead to a sharp drop in production costs, thus making the prices of export products more competitive, and exchanging trade for more foreign resources, thus improving the welfare of the country. However, for a big country or a major supplier of a commodity, the growth of its exports may cause a sharp drop in export prices. Once the decline of export price exceeds the increase of export volume, the terms of trade income will deteriorate, which will lead to immiserizing growth.
In addition to the quantitative effect of exchange rate changes, due to the different price elasticity of import and export commodities, exchange rate changes will have different effects on the import and export volume of traded commodities, and the cost of factors such as labor wages will also change due to exchange rate changes, which will also change the comparative advantages of import and export commodities, and the results of comprehensive effects will have an impact on the structure of import and export commodities. Obviously, compared with the decisive factors such as different stages of economic development, differentiated domestic industries and foreign trade policies, this influencing factor can strengthen the effect of the adjustment of trade commodity structure to a certain extent, which may be beneficial to the adjustment and optimization of domestic trade commodity structure and industrial structure in the long run and to the promotion of trade and industrial competitiveness. Considering the unilateral terms of trade (S), the formula is S =(Px/Pm )Zx, where Px and PM are the same terms of trade, and Zx represents the productivity index of the export sector. As enterprises strive to reduce costs, improve productivity and enhance competitiveness in the environment of exchange rate changes, the value of Zx can be greatly improved, even if the terms of trade of goods decline, the terms of trade of unilateral factors can still rise.
An analysis of the influence of exchange rate changes on China's terms of trade
Foreign trade plays an important role in China's economic growth. The depreciation of RMB exchange rate in a long period of time has promoted the development of China's foreign trade, especially its export trade. However, the continuous growth of export volume not only aggravates trade friction, but also may worsen its own terms of trade, leading to welfare loss and economic growth. At present, the appreciation of RMB exchange rate and the change of China's terms of trade have become hot issues in the economic field.
According to the analysis, the terms of trade are chosen as explanatory variables, and its influencing factors include exchange rate, quantitative effect caused by exchange rate changes and structural cost effect. Here, for the sake of simplicity, the terms of trade are conventionally expressed by commodity terms of trade (N), the real effective exchange rate of RMB is selected to explain the direct impact of exchange rate changes on the terms of trade, the share of China's trade exports in world exports (XW) explains the quantitative effect of exchange rate changes, and the domestic retail price index (RI) explains the cost effect of exchange rate changes, so the model is: ψ(TOT )=(REER, XW, RI. Logarithmic model is selected for empirical research, and regression analysis is made according to the data listed in the table below. The results are as follows:
lnTOT = 3.4939+0. 1474 ln reer-0. 1030
lnXW + 0.0959lnRI
( 1 1.7 109) (5.7788) (-2.9078) (2. 18 15)
R2 = 0.8470 DW = 0.63 16 F = 36.90 13
Looking up the table and comparing the parameters of the model, we can know that the model has passed the test of statistics and econometrics. From an economic point of view, for every change in RMB's real effective exchange rate 1%, the terms of trade will change by 0.1.474% in the same direction; For every change in the world's total export share of 1%, the terms of trade will be reversed by 0.1030%; Every time the domestic retail price index changes 1%, the terms of trade change by 0.0959% in the same direction. It can be seen that the change of RMB's real effective exchange rate has greater influence on the terms of trade than the change of variables XW and RI, indicating that the direct effect of exchange rate change on the terms of trade is significant, while the quantitative effect and cost effect of exchange rate change are weak due to the restriction and influence of mechanism transmission and adjustment. Among them, the reverse change between XW and terms of trade shows that when the export volume increases, China's terms of trade deteriorate. When the real effective exchange rate index of RMB increases, that is, the RMB appreciates, the terms of trade can be improved.
The influence of exchange rate changes on the terms of trade is not only a direct and single mechanism, but also various, including the direct reflection and effect on prices and the changes in quantity, cost and structure caused by price signals. These changes seem to be price chain effects, but in the long run, they have a qualitative impact on economic development, thus functionally changing or enhancing economic strength, which will further promote the improvement and improvement of a country's terms of trade. Its beneficial enlightenment is that due to the existence of many preconditions and restrictive conditions, it is necessary to discuss the influence of exchange rate changes on terms of trade from a short-term static perspective, and pay attention to the scope and conditions of analysis. Therefore, even though exchange rate adjustment may worsen the terms of trade in the short term, it may be beneficial in the long-term economic development.
It is more reasonable to use the real effective exchange rate of RMB as an explanatory variable than the nominal or real exchange rate. The reason is that the effective exchange rate is used to measure the international competitiveness of a country's trade goods, and can be used to study the early warning index of currency crisis, and can also be used to study the living standard of a country relative to another country's residents. Therefore, using the real effective exchange rate of RMB as the explanatory variable of terms of trade can better explain this mechanism. However, replacing other terms of trade with commodity terms of trade follows the usual practice, and introducing other explanatory variables reflects the various effects of exchange rate changes on terms of trade, which is an explanation of trade income conditions and unilateral factor terms of trade, thus enhancing the explanatory ability of the model. The real effective exchange rate of RMB has an important influence on the change of terms of trade, and its overall depreciation is related to the deterioration of terms of trade. At the same time, empirical research shows that the expansion of export volume has aggravated the deterioration of terms of trade.
At present, the pressure of RMB appreciation, the intensification of China's foreign trade friction and the deterioration of terms of trade show that in order to improve the terms of trade and promote economic development, it is necessary to coordinate and straighten out the interactive relationship between exchange rate and terms of trade. The focus is that a moderate appreciation of the real effective exchange rate of RMB in the short term will improve the deteriorating terms of trade, which will not only limit the immiserizing growth caused by the increase in export volume, but also have an impact on domestic factor costs and the structure of import and export commodities. The purpose of improving the terms of trade is to enhance the endogenous determination ability of the terms of trade, that is, the strength and level of domestic industrial structure and competitiveness and product structure and competitiveness compared with other trading countries under the condition of open economy. This undoubtedly requires that countries or regions participating in economic globalization, especially developing countries like China, must coordinate the relationship between growth and development, not only give play to their own comparative advantages, but also pay more attention to the formation of dynamic comparative advantages, and pay more attention to improving quality and level while increasing quantity.