lecture 5 export and economic growth in china.ppt

Export and Economic Growth in China: A Demand-Oriented Analysis I. In the research period, China’s foreign trade has experienced a rapid growth. II. The relationship between China’s foreign trade and economic growth has become a hot issue. III. Two categories of present research: The causality between exports and economic growth or vice versa. The empirical analysis of the contribution of foreign trade to economic growth. The common shortcoming of the previous research is that they only estimate the direct impact of the export and ignore the indirect impacts. The Issues of Traditional Estimations The starting point is the accounting identity of GDP: Y=C+I+G+(X-M) (1) Differentiating(1) with respect to time gives(2). Equation (2) can be rewritten as equation(3) : The Issues of Traditional Estimations In China, government expenditure, G, is not singled out in the calculation of GDP through an expenditure approach. C represents final consumption, which includes both household consumption and government consumption. I represents total capital formation, which includes both enterprise investment and the part of expenditure that is directly used for capital formation. The Issues of Traditional Estimations The results of traditional estimations based on equation(4) are given in table 1 on page 4. Two characteristics of the traditional estimation: The calculation process is simple. Data are easily available. The Issues of Traditional Estimations The contribution of foreign trade estimated in this way is, however, very low. Resluts of this kind have fueled policy recommendations arguing for more emphasis on domestic demand. Foreign trade balance and GDP growth are negatively related? The first possible reason: every time net exports increase, there comes an exogeneous force that could affect other variables in the identity, which finally leads to a decrease in GDP. Independent variables in the identity are correlated. The Issues of Traditional Estimations Ta