China's economic growth reshapes real exchange rate dynamics, impacting global economy.
China's rapid economic growth is influenced by various factors like productivity gains and policy reforms. A hypothesis linking productivity growth to real exchange rate appreciation may not fully apply in China due to differences in prices for tradable goods. The study found that financial capital inflows have a short-term impact on the real exchange rate, while productivity differences have a medium-term effect. Surprisingly, demographic factors have a weaker long-term influence compared to changes in the labor force's skill composition.