The COVID-19 Pandemics and Import Demand Elasticities: Evidence from China's Customs Data

We study China's import demand elasticities using HS 8-digit customs data on China's provincial imports during January 2019 to March 2021. It is found that both direct bilateral exchange rate elasticity and third-country exchange rate elasticity are affected by (1) policies that these Asian economies adopted to alleviate the adverse impacts of the COVID-19 pandemic and (2) the degree of concentration of exporters exporting a certain product to a certain Chinese provincial market. It is found that economic support policies will lower the bilateral exchange rate elasticity of trade flows, or even alter the sign of the bilateral exchange rate elasticity of China's imports. Besides, the economic support policies can alleviate the pressure of foreign competition on exporters and make the exporters more resilient to the impacts of foreign competitors' exchange rate depreciation. In contrast, the degree of market concentration of exporters in a certain provincial market affects the exchange rate and the third-country exchange rate elasticity differently. A higher market concentration lowers the bilateral exchange rate elasticity of trade flows but magnifies the impact of foreign competitors' currency depreciation on exporters. These results are robust to alternative modes of trade, regional heterogeneity, product heterogeneity, various measures of policy responses to the pandemic, and alternative database.

Weikang Zhang, Isabel K. M. Yan, Yin-Wong Cheung