This paper applies dynamic specification approach and error correction model form to construct a quarterly foreign trade model of China at the aggregate level for the period of 1992-2004. The empirical results indicate China’s imports and exports depend on each other both in the long run and short run, which reflects the special and importance role of processing trade in China. Imports respond to exports and gross domestic production (GDP) in the long run. Imports, world trade and relative price of exports are significant in exports’ long run equilibrium. Experiments with an appreciation of Chinese Yuan are simulated in this paper
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