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How Important are Exports and Foreign Direct Investment for Economic Growth in the People’s Republic of China?

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  • Xing, Yuqing

    (Asian Development Bank Institute)

  • Pradhananga, Manisha

    (Asian Development Bank Institute)

Abstract

The global financial crisis and the recent growth slowdown in the People’s Republic of China (PRC) have led to questions about the sustainability of the PRC’s growth. The commonly used argument is that the PRC is too dependent on external demand and that it needs to rebalance its economy toward domestic consumption. However, conventional measures of external demand—share of net exports and exports as a share of gross domestic product (GDP)—are biased and do not accurately measure the contribution of external demand to GDP growth. In this paper, the authors propose two measures that provide a more accurate estimate of the vulnerability of the PRC economy to external shocks, in the form of sudden drops in exports and foreign direct investment (FDI). Based on their findings, the authors conclude that the PRC economy remains highly dependent on external demand in the form of exports and FDI, and rebalancing the economy toward domestic demand has not yet been achieved.

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Bibliographic Info

Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 427.

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Length: 18 pages
Date of creation: 01 Jul 2013
Date of revision:
Handle: RePEc:ris:adbiwp:0427

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Keywords: prc economy; growth; external demand; gdp accounting;

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References

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  1. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
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  13. Qin, Duo & Cagas, Marie Anne & Quising, Pilipinas & He, Xin-Hua, 2006. "How much does investment drive economic growth in China?," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 751-774, October.
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  15. Jordan Shan & Fiona Sun, 1998. "On the export-led growth hypothesis: the econometric evidence from China," Applied Economics, Taylor & Francis Journals, vol. 30(8), pages 1055-1065.
  16. Wong Hock Tsen, 2010. "Exports, Domestic Demand, and Economic Growth in China: Granger Causality Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 625-639, 08.
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  18. Judith A. Giles & Cara L. Williams, 2000. "Export-Led Growth: A Survey of the Empirical Literature and Some Noncausality Results, Part 2," Econometrics Working Papers 0002, Department of Economics, University of Victoria.
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