EFFECTS OF CURRENCY DEVALUATION UPON EVELOPING NATIONS: GLOBAL EFFECTS OF YUAN DEVALUATIONEFFECTS OF CURRENCY DEVALUATION UPON DEVELOPING NATIONS: GLOBAL EFFECTS OF YUAN DEVALUATION

Abstract

The motivation to conduct this assessment was to gauge devaluation, its cause, and consequences on the developing economies, shedding light on the recent devaluation policies of China to lower its exchange rate. Based on the theoretical analysis, devaluation of currency has an important implication in developing nations resulting in improving trade balances if the country is in a state of distress. However, this is only possible when the elasticities of export and import demands for commodities result in a value greater than one. An empirical review of the literature suggests the little impact of devaluation on the Asian developing economies when considered in large samples; reason following could be from a high dependence on imported items to the slow response to cater the demand for exports in the markets for manufactured goods and primary commodities. However, as the sample size is reduced to developing countries with the relatively greater level of industrialization and stability, the impact of devaluation on improved trade balances was visible and led to economic development. The basic motivation of this research paper is to assess the Chinese Yuan‟s devaluation on the Asian economic region of trade presented in the following case study.