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Feast and Famine: Explaining Big Swings in the Hong Kong Economy between 1981 and 2007

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  • Chak Hung J. Cheng

    (The University of North Carolina at Chapel Hill)

  • Michael K. Salemi

    (The University of North Carolina at Chapel Hill ,Hong Kong Institute for Monetary Research)

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    Abstract

    On average between 1981 and 2007, output per capita in Hong Kong grew at an annual rate of 3.2 percent. But economic performance over the period was far from even. Between 1987 and 1997, output per capita averaged 9.7 percent above its long run growth path. In 1997, the feast ended and the famine began. Over the next 11 years, output per capita averaged 5.2 percent below its long run path. This paper attempts to explain this big swing. We use two types of analysis. First, we use a nine-variable Bayesian Vector Autoregression and summarize the results as a set of stylized facts. Chief among these is the finding that economic activity in Hong Kong is highly sensitive to shocks of foreign origin. Second, we set our and estimate a dynamic, general equilibrium model which is able to account, at least qualitatively, for our stylized facts. We use the model to infer the relative importance of different shocks in accounting for feast and famine in Hong Kong.

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    Bibliographic Info

    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 372009.

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    Length: 73 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:hkm:wpaper:372009

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    1. Olaf Unteroberdoerster & Cynthia Leung, 2008. "Hong Kong SAR As a Financial Center for Asia," IMF Working Papers 08/57, International Monetary Fund.
    2. Simon J. Evenett, 2003. "The Cross Border Mergers and Acquisitions Wave of the Late 1990s," NBER Working Papers 9655, National Bureau of Economic Research, Inc.
    3. di Giovanni, Julian, 2002. "What Drives Capital Flows? The Case of Cross-Border M&A Activity and Financial Deepening," Center for International and Development Economics Research, Working Paper Series qt7nq6d7wp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    4. David T Coe & Arvind Subramanian & Natalia T Tamirisa, 2007. "The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 34-58, May.
    5. Gugler, Klaus & Mueller, Dennis C. & Weichselbaumer, Michael, 2008. "The Determinants of Merger Waves: An International Perspective," ZEW Discussion Papers 08-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    7. Rabin Hattari & Ramkishen S. Rajan, 2008. "Trends and Drivers of Bilateral FDI Flows in Developing Asia," Working Papers 112008, Hong Kong Institute for Monetary Research.
    8. Loungani, Prakash & Mody, Ashoka & Razin, Assaf, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-43, December.
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