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Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels

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  • Ludovic Gauvin
  • Cyril C. Rebillard

Abstract

China's rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. While concerns about the sustainability of China's growth model are rising, we assess to what extent rebalancing through a hard landing in China would impact other countries. After reviewing the main arguments pointing to a hard landing scenario—historical rebalancing precedents, overinvestment, unsustainable debt trends and real estate bubble—we use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end‐use patterns and consumption intensity in China. According to our estimates, emerging economies would be hardest hit—with a 7.5% cumulated growth loss after 5 years—in particular in Emerging Asia and in commodity‐exporting regions such as Latin America. The “growth gap” between emerging and advanced economies would be considerably reduced, leading to partial recoupling. In the light of these results, both the “commodity supercycle” and sustained convergence observed in emerging economies over the past decade could be to a large extent attributed to the high and unbalanced growth pattern in China.

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  • Ludovic Gauvin & Cyril C. Rebillard, 2018. "Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels," The World Economy, Wiley Blackwell, vol. 41(12), pages 3379-3415, December.
  • Handle: RePEc:bla:worlde:v:41:y:2018:i:12:p:3379-3415
    DOI: 10.1111/twec.12631
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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