Abstract

This paper analyses how the changes in the exchange rate between the U.S. dollars (USD) and the Chinese yuan (CNY) affect the volume of manufacturing exports in China. With China being a manufacturing center, the information on the impact of currency volatility on trade performance is very important to policymakers and other stakeholders in the industry. Using theories of the Marshall-Lerner condition and the J-Curve effect, the study will employs econometric models namely a baseline regression model, ARDL modeling, and J-Curve analysis, which will help estimate the effects of exchange rate volatility in the short-run and the long-run trends. The model reliability is tested through diagnostic tests. The empirical findings shows that the appreciation of the real exchange rate has a significant effect in decreasing the amount of exports especially in price-elastic industries. However, not all industries exhibit the same degree of sensitivity, and the paper identifies sector-specific responses to exchange rate movements. Regarding global demand, the paper uses world GDP as a proxy, and while it shows strong significance in several regressions, its influence varies across sectors and time horizons. Therefore, while global demand plays an important role in export performance, its impact is not uniformly robust across all specifications. The paper contributes to the ongoing debate on exchange rate pass-through by providing evidence of the fact that although all sectors are impacted, the degree of sensitivity differs among industries. Throughout the analysis, a clear distinction is made between the level of the exchange rate and its volatility, ensuring conceptual consistency. The results provide useful information about the dynamics of China’s export-oriented economy in response to currency fluctuations, which has implications in the trade policy, risk management, and international competitiveness.

Advisor

Krause, Brooke

Department

Economics

Publication Date

2025

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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