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Economic interdependence and bilateral trade imbalance across the Taiwan Strait

Economic interdependence and bilateral trade imbalance across the Taiwan Strait Purpose – Despite a growing interest in research, no existing study explores the nature of, and the relationship between, the real exchange rate and trade imbalance between Taiwan and China. These economies were admitted to the World Trade Organization in late 2001 (China) and in January 2002 (Taiwan). This study aims to redress this deficiency. Design/methodology/approach – Using Johansen's cointegration approach and bilateral trade data, the study reveals overwhelming evidence of a stable long‐run relationship of the real exchange rate and bilateral trade balance between Taiwan and its trading partners: China, the USA, Japan, Korea, Hong Kong and Singapore. Findings – The evidence indicates that the currency depreciation of the New Taiwan dollar improves Taiwan's bilateral trade balance, except with China. Originality/value – The findings imply that Taiwan cannot resolve the cross‐Strait trade imbalance alone via the currency depreciation, and macroeconomic adjustments, including application of the WTO rules, currency exchange and imports of Chinese goods, need to be negotiated on both sides of the Taiwan Strait. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Economic interdependence and bilateral trade imbalance across the Taiwan Strait

Yi‐Bin Chiu; Chia‐Hung Sun
Journal of Economic Studies , Volume 36 (4): 22 – Sep 4, 2009
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References (59)

Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443580910983816
Publisher site
See Article on Publisher Site

Abstract

Purpose – Despite a growing interest in research, no existing study explores the nature of, and the relationship between, the real exchange rate and trade imbalance between Taiwan and China. These economies were admitted to the World Trade Organization in late 2001 (China) and in January 2002 (Taiwan). This study aims to redress this deficiency. Design/methodology/approach – Using Johansen's cointegration approach and bilateral trade data, the study reveals overwhelming evidence of a stable long‐run relationship of the real exchange rate and bilateral trade balance between Taiwan and its trading partners: China, the USA, Japan, Korea, Hong Kong and Singapore. Findings – The evidence indicates that the currency depreciation of the New Taiwan dollar improves Taiwan's bilateral trade balance, except with China. Originality/value – The findings imply that Taiwan cannot resolve the cross‐Strait trade imbalance alone via the currency depreciation, and macroeconomic adjustments, including application of the WTO rules, currency exchange and imports of Chinese goods, need to be negotiated on both sides of the Taiwan Strait.

Journal

Journal of Economic Studies – Emerald Publishing

Published: Sep 4, 2009

Keywords: Trade balances; Taiwan; China; Economic policy

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