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Sense and Nonsense on Asia's Export Dependency and The Decoupling Thesis

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Author Info

  • Dong He

    ()
    (Research Department, Hong Kong Monetary Authority)

  • Lillian Cheung

    ()
    (Research Department, Hong Kong Monetary Authority)

  • Jian Chang

    ()
    (Research Department, Hong Kong Monetary Authority)

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Abstract

It has often been argued that East Asia needs to switch from an export-led growth model to a domestic-demand led growth model so as to reduce its vulnerability to a sharp slowdown in the US economy. This paper argues that, indeed, in the foreseeable future, East Asia's business cycle is unlikely to decouple with that of the US, but the switch-of-growth-model argument is problematic because it mixes up the effects of external trade on an economy's cyclical developments and its long-term growth potential. The paper argues that the desirable way to reduce external vulnerabilities is to diversify export markets and to further strengthen domestic institutions and policies in order to reduce the impact of temporary shocks, not by reducing the degree of openness or the share of exports in GDP. The paper further argues that the rising size of domestic demand in Mainland China will overtime help the rest of the region to diversify its export markets away from the major industrialized countries.

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File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_03_full.pdf
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Bibliographic Info

Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0703.

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Length: 27 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:hkg:wpaper:0703

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Keywords: Export-led growth; domestic demand-led growth; decoupling;

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Cited by:
  1. AkIn, Cigdem & Kose, M. Ayhan, 2008. "Changing nature of North-South linkages: Stylized facts and explanations," Journal of Asian Economics, Elsevier, vol. 19(1), pages 1-28, February.
  2. Papa N'Diaye & Ping Zhang & Wenlang Zhang, 2008. "Structural Reform, Intra-Regional Trade, and Medium-Term Growth Prospects of East Asia and the Pacific --- Perspectives from a new multi-region model," Working Papers 0817, Hong Kong Monetary Authority.
  3. He, Dong & Zhang, Wenlang, 2010. "How dependent is the Chinese economy on exports and in what sense has its growth been export-led?," Journal of Asian Economics, Elsevier, vol. 21(1), pages 87-104, February.
  4. Dong He & Wei Liao, 2011. "Asian Business Cycle Synchronisation," Working Papers 062011, Hong Kong Institute for Monetary Research.
  5. Korhonen, Iikka & Fidrmuc , Jarko, 2009. "The impact of the global financial crisis on business cycles in Asian emerging economies," BOFIT Discussion Papers 11/2009, Bank of Finland, Institute for Economies in Transition.
  6. Sudip Ranjan Basu & Clovis Freire & Pisit Puapan & Vatcharin Sirimaneetham & Yusuke Tateno, . "Euro zone debt crisis: Scenario analysis and implications for developing Asia-Pacific," MPDD Working Paper Series WP/12/03, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  7. Zhiwei Zhang, 2008. "Can Demand from China Shield East Asian Economies from Global Slowdown?," Working Papers 0819, Hong Kong Monetary Authority.

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