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China's demand shock in world commodity markets: do resource windfalls lead to economic growth?

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  • Li, Yanbai
  • Wu, Fenglan

Abstract

This study investigates how China's resource demand shock influenced economic growth in developing countries, addressing a gap in the literature on the growth effects of the 2000s commodity boom. While existing studies document China's global trade impact, the consequences of its resource-driven demand surge remain underexplored. Using data from 100 developing countries between 2001 and 2013, we apply a shift-share instrumental variable approach that leverages China's exogenous demand as a source of variation in multilateral resource exports. We find that resource windfalls during this period reduced economic growth by an average of 40 %. Two key transmission mechanisms are identified: exchange rate appreciation and a decline in foreign direct investment. These findings offer new insights into the costs of resource dependence amid global commodity cycles, expand the literature on China's economic rise, and highlight the structural vulnerabilities faced by resource-exporting developing economies.

Suggested Citation

  • Li, Yanbai & Wu, Fenglan, 2025. "China's demand shock in world commodity markets: do resource windfalls lead to economic growth?," Economic Modelling, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:ecmode:v:151:y:2025:i:c:s026499932500224x
    DOI: 10.1016/j.econmod.2025.107229
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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