Empirical analysis of real exchange rate and income change affecting the trade between China and Euro area

The main body of text carries out empirical research with panel data method about the relation of bilateral trade and real exchange rate, the relation of bilateral trade and income change between China and Euro area, and carries out analysis on empirical result. The result indicates that the impact of RMB real exchange rate and income change on foreign trade between China and Euro area is different currently. It is identical trend that China affecting Euro area about import and export responds to RMB real exchange rate change, which affects import larger than export; the income elasticity of import is very large, but income elasticity of export is very small and not notable. The author thinks that RMB appreciation can not cut down trade surplus between China and Euro area, but be able to expand it; The key to change huge trade surplus between China and Euro area lies in altering economic growth pattern of export for guiding in China. Conclusion and enlightenment are as follows Firstly, at present, exchange rate elasticity of Chinese import from Euro area is bigger and elastic sign is opposite to expectation, while exchange rate elasticity of Chinese export to Euro area is smaller and not very significant. Secondly, in the short time, income elasticity of Chinese import from Euro area is larger than that of Chinese export to Euro area, and income elasticity sign of import is opposite to expectation. Thirdly, there are three factors that induce China and Euro area country to still keep larger trade surplus in recent years, for example, continuing to develop fast of national economy in China, unobvious devaluation extent of RMB to Euro, larger effect of previous phase trade to current trade In my opinion, the key of leading to this state lies in that continuing to develop fast of Chinese economy is not built in Chinese demand, but on the basis of export demand. Finally, at present, huge trade surplus of China and Euro area has brought about trade dispute problems.