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Assessing the vulnerability of emerging Asia to external demand shocks: the role of China

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Author Info
Daniela Marconi () (Bank of Italy)
Laura Painelli () (Bank of Italy)

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Abstract

The paper assesses the vulnerability of China to external shocks via the indirect negative effect of a slow-down in exports on domestic demand for investment. In the last decade China has increased its dependence on external demand, particularly from the advanced countries; at the same time it has become a primary destination market for goods produced in the rest of emerging Asia. Since 2001 investment expenditures have represented a key driver of Chinese GDP growth; as a very large share of activity in the manufacturing sector is export oriented, we expect fixed capital investment in this sector to be highly related to exports. Overcoming serious shortcomings in available data, we estimate an investment equation for the period 1993-2006 and find an elasticity of investment to exports in the manufacturing sector in the range between 0.9 and 1. Taking into account the dominant contribution of capital accumulation to Chinese GDP growth, we conclude that the growth effects of an external demand shock could become significant when taking into account the domestic investment channel.

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Paper provided by Bank of Italy, Economic Research Department in its series Questioni di Economia e Finanza (Occasional Papers) with number 38.

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Date of creation: Feb 2009
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Handle: RePEc:bdi:opques:qef_38_09

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Related research
Keywords: exports; investment; elasticity;

Find related papers by JEL classification:
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
N6 - Economic History - - Manufacturing and Construction

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor and Francis Journals, vol. 19(3), pages 321-340. [Downloadable!] (restricted)
    Other versions:
  2. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-11-20.

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