Country-level impact of global recession and China’s stimulus package
AbstractA dynamic computable general equilibrium model is developed to assess the impact of the recent global recession and the Chinese government’s stimulus package on China’s economic growth. The model is first used to capture the actual sector-level economic growth in 2008 and the possible economic performance in 2009 without the intervention of the Chinese government through its stimulus package. Under this global recession scenario, the GDP growth rate in 2009 falls to 2.9 percent mainly as a result of the sharp drop in exports of manufactured goods, while the agricultural sector is more crisis-resilient. Because export-oriented manufacturing sectors are often import-intensive, the weakened economy is accompanied by a reduction in Chinese firms’ import demand for materials, intermediates, and capital goods. The model also shows that without government intervention, the negative effect of a one-year shock on the Chinese economy would last for many years. Also, over the next five to six years, China is unlikely to replicate its strong economic performance of the past two decades. China’s stimulus package is modeled through increased investment financed by government resources. With additional demand on investment goods, growth in the investment-related production sector is stimulated. Through the cross-sector linkages in a general equilibrium model, the demand for other noncapital goods increases, thus stimulating growth in these sectors. As production of more industrialized sectors starts to grow, so will households’ income and consumption, providing market opportunities for those agricultural and service sectors that mainly produce for the domestic market. Under the stimulus scenario, the Chinese economy is expected to grow 8–10 percent in 2009 and the succeeding years. The growth engine in this case differs from that before 2008: growth is led by domestic demand, while trade still falls significantly in 2009 (instead of the double-digit growth before 2008). Domestic demand-driven stimulus growth creates jobs, and hence it increases income for both urban and rural households. The model is also used to measure the overall gains of the stimulus package by comparing GDP between the two scenarios. Without considering the productivity-enhancing role of public investment as part of the stimulus package (which is important for long-term growth but unlikely to happen in the short run), the cumulative difference of the GDP between the two scenarios over the next seven years is about RMB76 trillion, which is about three times more than the GDP in 2007.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 979.
Date of creation: 2010
Date of revision:
China stimulus package; Development strategies; general equilibrium modeling; global financial crisis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-17 (All new papers)
- NEP-DEV-2010-07-17 (Development)
- NEP-FDG-2010-07-17 (Financial Development & Growth)
- NEP-TRA-2010-07-17 (Transition Economics)
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.:
- Diao, Xinshen & Rattsø, Jørn & Stokke, Hildegunn Ekroll, 2002. "International spillovers, productivity growth and openness in Thailand," TMD discussion papers 89, International Food Policy Research Institute (IFPRI).
- Breisinger, Clemens & Diao, Xinshen & Thurlow, James, 2009. "Modeling growth options and structural change to reach middle income country status: The case of Ghana," Economic Modelling, Elsevier, vol. 26(2), pages 514-525, March.
- Löfgren, Hans & Harris, Rebecca Lee & Robinson, Sherman, 2001. "A standard computable general equilibrium (CGE) model in GAMS," TMD discussion papers 75, International Food Policy Research Institute (IFPRI).
- Diao, Xinshen & Hazell, Peter & Resnick, Danielle & Thurlow, James, 2006.
"The role of agriculture in development: implications for Sub-Saharan Africa,"
DSGD discussion papers
29, International Food Policy Research Institute (IFPRI).
- Diao, Xinshen & Hazell, P.B.R. & Resnick, Danielle & Thurlow, James, 2007. "The role of agriculture in development: Implications for Sub-Saharan Africa," Research reports 153, International Food Policy Research Institute (IFPRI).
- Xinshen Diao & Terry L.Roe & Erinç Yeldan, 1996. "A Simple Dynamic Applied General Equilibrium Model of a Small Open Economy : Transitional Dynamics and Trade Policy," Departmental Working Papers 963, Bilkent University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.