2: Non-traded Factor Appreciation in China

Author(s):

Gordon Menzies, Economics Discipline Group, University of Technology Sydney, Sydney, Australia
Xiaolin Xiao, Economics Discipline Group, University of Technology Sydney, Sydney, Australia

Date of publication: September 2012

Working paper number: 2

Abstract:

The departure of a factor in excess supply in the non-traded sector leads to a real appreciation, in a setup that combines the canonical Lewis Model (Lewis, 1954, and Fei and Ranis, 1961, 1964) with a Balassa-Samuelson traded/non-traded dichotomy (Obstfeld and Rogoff, 1996). China is a potential candidate for non-traded factor appreciation, since it has not completed its structural transformation. A transfer of rural labor to urban areas will appreciate the real exchange rate.

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