How dependent is the Chinese economy on exports and in what sense has its growth been export-led?
This paper studies the interaction between foreign trade and domestic demand and supply in China's economic transformation. It compares China's export dependency with other economies using input-output analysis. The paper also conducts econometric analysis of provincial level data to examine causality between the growth of foreign trade and components of domestic demand, and causality between the growth of foreign trade and total factor productivity. The main message is that China's export dependency is significantly lower than implied by the headline exports-to-GDP ratio. Moreover, the contribution of export to economic growth in China came mainly from its impact on total factor productivity growth from a supply perspective rather than its multiplier effect from a demand perspective. This relationship was found to be stronger in the more developed coastal areas than in the less developed inland areas.
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