Can Exchange-rate Appreciation Upgrade Capital-labor Ratio in the Manufacturing Sector in China?
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| Title | Can Exchange-rate Appreciation Upgrade Capital-labor Ratio in the Manufacturing Sector in China?
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| Author | Wang Jinbin and Wang Meijuan |
| Organization | RENMIN UNIVERSITY of CHINA |
| Email | wjinbin@ruc.edu.cn |
| Key Words | Exchange rate; Dynamic factor demand; Capital-labor ratio |
| Abstract | Using dynamic factor demand model and the data from 2005 to 2011, this paper makes a quantitative analysis to test whether changes in the relative price of capital have effect on the capital-labor ratio. The empirical evidence shows that the elasticity of capital-labor ratio to the relative price of capital is approximately -0.12. Assuming complete RMB exchange rate pass-through effect, 10% appreciation of the exchange rate will only lead to the capital-labor ratio rise by 0.44%. Thus, the effect of the exchange rate is limited. The effective way to upgrade the capital-labor ratio is to cut down the costs of raising capital by improving the efficiency of financial system, not the appreciation of Renminbi. |
| Serial Number | WP759 |
| Time | 2014-11-20 |
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