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The Effect of Changes in Real Exchange Rates on Employment: Evidence from Manufacturing Industries in China, 1980–2002 |
| FAN Yanhui1, SONG Wang2 |
| 1.School of Economics and Business Administration, Beijing Normal University, Beijing 100875, PRC; 2.China Center for Economic Research, Peking University, Beijing 100871, PRC; |
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Abstract This paper analyzes the effect of changes in real exchange rate on manufacturing employment. Our theoretical model predicts the positive effect of depreciation of real exchange rate on employment through a firm s expectation on changes in real exchange rate and the interaction between real exchange rate and a firm s import and domestic input. Using China s manufacturing data during the 1980 2003 period, we find that depreciation of real exchange rate promotes employment growth in manufacturing industries, while change in real exchange rate is not a significant factor in promoting wage growth. We also find that an increase in export share offsets partially the effects of real exchange rate on employment and real wages.
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Issue Date: 05 March 2006
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