Whether currency devaluation promotes growth remains an empirically open question. Coexistence of an undervalued currency and the world’s largest trade surplus alongside a booming economy makes China a unique case study. Using annual data over 1977-2006 and the relatively recent “bounds-testing approach” to cointegration and error-correction modeling, we estimate a reduced form model to investigate the exchange rate sensitivity of China’s real GDP. We find that currency devaluation is contractionary in China.
Ratha, Artatrana; Kang, Eungmin; and Edwards, Mary, "Does an Undervalued Currency Promote Growth? Evidence from China" (2008). Economics Faculty Working Papers. 15.