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BOK Working Paper No.2019-24, Impact of Chinese Renminbi on Korean Exports: Does Quality Matter?

Economic Research Institute (82-2-759-5364) 2019.09.24 1114

Title : Impact of Chinese Renminbi on Korean Exports: Does Quality Matter?
Author : Jihyun Eum(BOK)

<Abstract>

This paper examines the impact of changes in the Chinese exchange rate on Korean exports taking into consideration the characteristics of the exported products. In this paper, we consider the degree of vertical product differentiation to be one of the causes that ease the negative spillover effects from the depreciation of the Chinese renminbi on Korea’s export performance. Using import data from OECD member countries from 2002 to 2014, we find that Korea's exports to OECD countries of the products that have a greater degree of competition fall more as the renminbi depreciates. In addition, once quality differences between Korea and China are considered in the estimation, the negative impact from the depreciation of the Chinese renminbi turn out to be negligible. Due to a small response to the depreciation of the Chinese renminbi for a high quality good, the negative impact diminishes in the markets and the products where Korean goods show a relatively higher quality than those of China.

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