The impact of the Chinese renminbi on the exports of Korea and Japan to the U.S

This paper examines the impacts of the real exchange rates of the Chinese renminbi against the US dollar on the Japanese and the Korean exports to the US. Empirical test results, which have analyzed the quarterly data covering 1986Q1 to 2005Q2, show different long-run impacts of the renminbi in the export functions of the two countries. In particular, according to the estimation of cointegrating vectors, depreciation of the renminbi has a positive impact on the Japanese exports but a negative impact on the Korean exports. However, some stability tests indicate a structural break in the export functions. Different from the case of the estimation for the whole sample period, in empirical tests with recent sub-period data, depreciation of the Chinese renminbi turns out to have positive impact both on the Japanese exports and the Korean exports. In addition, the real GDP of the US turns out to have positive impacts on the exports of the two countries. The exchange rate volatility of the Korean won has negative impact on the Korean exports but a positive impact on the Japanese exports. The short-run dynamics examined by error correction models show similar impacts of the explanatory variables.