Endnotes

¹A real appreciation could be accomplished by either an appreciation of the nominal exchange rate or an increase in the price level.

²Figure 2 shows aggregate PRC exports. Some categories of PRC exports are more sensitive to income. Thorbecke and Smith (2010) reported that that sophisticated processed exports from PRC to the world have higher income elasticity than less sophisticated ordinary exports.

³They defined the NIEs as Korea; Singapore; and Taipei,China and ASEAN-4 as Indonesia, Malaysia, Philippines, and Thailand.

⁴A DOLS (2, 2) model employs two leads and two lags of the first differences of the right-side variables.

⁵Bosworth and Collins (2010), on the other hand, found that the Houthakker-Magee asymmetry has disappeared, with income elasticity of demand for US exports of 2.7 and income elasticity of demand for US imports of 2.4. They also found larger exchange rate coefficients than those reported by Chinn (2005a, 2005b).

⁶In the US, by contrast, consumption goods imports were 25% of total imports in 2007. The source of these statistics is the CEPII-Chelem database.

⁷According to Koopman, Wang, and Wei (2008), PRC value-added in these sectors is small relative to the costs of the intermediate goods imported from abroad. For instance, they reported that PRC value-added in electronic computers was less than 5% in 2002 and that PRC value-added in telecommunications equipment was less than 15%.

⁸Koopman, Wang, and Wei (2008) reported that PRC value-added in these industries is approximately 70%.

⁹In recent years more of the assembly operations have migrated to the PRC. As more of the value-added is produced in PRC, an appreciation of the yuan should have a larger effect on processed exports.

¹⁰Data sources are presented in Appendix 2.

¹¹Detailed results are available on request.

¹²Updated data are available at http://courses.nus.edu.sg/course/ecstabey/gdpdata.xls. Following the authors' recommendation, these data were seasonally adjusted before being included in the model and were extended for the last couple of years using real GDP growth rates available from the Economist Intelligence Unit country data.

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