IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The costs of rebalancing the China-US co-dependency

  • Luigi Bonatti


  • Andrea Fracasso


    (Department of Economics, University of Trento)

The global crisis has revived the growth-rebalancing debate, backing the position of those advocating a fast reduction of the imbalances between the US and China. By means of a two-country two-stage growth model reproducing the main qualitative features of the Sino-American co-dependency, we analyze alternative (medium- and long-term) scenarios for its evolution. We show that altering the Chinese exchange rate policy and down-sizing the US external deficits with a view to moving the production of tradables toward the US may imply relevant costs: the emergence of structural unemployment in the US and a slow-down in the process whereby the Chinese labor force is gradually absorbed in the modern sectors of the economy.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Yes

Article provided by Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore in its journal Rivista Internazionale di Scienze Sociali.

Volume (Year): 120 (2012)
Issue (Month): 1 ()
Pages: 59-106

in new window

Handle: RePEc:vep:journl:y:2012:v:120:i:1:p:59-106
Contact details of provider:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Eswar S. Prasad & Raghuram G. Rajan, 2006. "Modernizing China's Growth Paradigm," American Economic Review, American Economic Association, vol. 96(2), pages 331-336, May.
  2. Rudolfs Bems, 2008. "Aggregate Investment Expenditures on Tradable and Nontradable Goods," IMF Working Papers 08/45, International Monetary Fund.
  3. Blanchard, Olivier J & Giavazzi, Francesco, 2006. "Rebalancing Growth in China: A Three-Handed Approach," CEPR Discussion Papers 5403, C.E.P.R. Discussion Papers.
  4. Yin-Wong Cheung & Xingwang Qian, 2007. "Hoarding of International Reserves: Mrs Machlup’s Wardrobe and the Joneses," CESifo Working Paper Series 2065, CESifo Group Munich.
  5. Michael W. Klein & Scott Schuh & Robert K. Triest, 2000. "Job Creation, Job Destruction, and the Real Exchange Rate," NBER Working Papers 7466, National Bureau of Economic Research, Inc.
  6. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sectoral Level," IEHAS Discussion Papers 0803, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  7. Emanuele Baldacci & Ding Ding & David Coady & Giovanni Callegari & Pietro Tommasino & Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Expenditures on Social Programs and Household Consumption in China," IMF Working Papers 10/69, International Monetary Fund.
  8. Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Oxford University Press, vol. 32(2), pages 273-288, March.
  9. Simon Burgess & Michael M. Knetter, 1996. "An International Comparison of Employment Adjustment to Exchange Rate Fluctuations," NBER Working Papers 5861, National Bureau of Economic Research, Inc.
  10. Caballero, Ricardo & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of 'Global Imbalances' and Low Interest Rates," CEPR Discussion Papers 5573, C.E.P.R. Discussion Papers.
  11. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
  12. Knight, John & Deng, Quheng & Li, Shi, 2011. "The puzzle of migrant labour shortage and rural labour surplus in China," China Economic Review, Elsevier, vol. 22(4), pages 585-600.
  13. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
  14. Ronald McKinnon & Gunther Schnabl, 2009. "The Case for Stabilizing China's Exchange Rate: Setting the Stage for Fiscal Expansion," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(1), pages 1-32.
  15. Loayza, Norman V. & Raddatz, Claudio, 2010. "The composition of growth matters for poverty alleviation," Journal of Development Economics, Elsevier, vol. 93(1), pages 137-151, September.
  16. Luigi Bonatti & Andrea Fracasso, 2010. "Global Rebalancing and the Future of the Sino-US Codependency," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 70-87.
  17. Jose Manuel Campa & Linda S. Goldberg, 1998. "Employment versus wage adjustment and the U.S. dollar," Staff Reports 56, Federal Reserve Bank of New York.
  18. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  19. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  20. Ronald McKinnon, 2006. "China's Exchange Rate Trap: Japan Redux?," American Economic Review, American Economic Association, vol. 96(2), pages 427-431, May.
  21. Willem Thorbecke & Hanjiang Zhang, 2009. "The Effect Of Exchange Rate Changes On China'S Labour-Intensive Manufacturing Exports," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 398-409, 08.
  22. Rodrik, Dani, 2010. "Making Room for China in the World Economy," Scholarly Articles 5341587, Harvard Kennedy School of Government.
  23. Leslie Lipschitz & Genevieve Verdier & Celine Rochon, 2008. "A Real Model of Transitional Growth and Competitiveness in China," IMF Working Papers 08/99, International Monetary Fund.
  24. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  25. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
  26. Ghironi, Fabio & Iscan, Talan B. & Rebucci, Alessandro, 2008. "Net foreign asset positions and consumption dynamics in the international economy," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1337-1359, December.
  27. Fracasso, Andrea & Schiavo, Stefano, 2009. "Global imbalances, exchange rates adjustment and the crisis: Implications from network analysis," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 601-619, September.
  28. Obstfeld, Maurice, 2012. "Financial flows, financial crises, and global imbalances," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 469-480.
  29. Robert Dekle & Guillaume Vandenbroucke, 2010. "Whither Chinese Growth? A Sectoral Growth Accounting Approach," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 487-498, 08.
  30. International Monetary Fund, 2009. "Employment Effects of Growth Rebalancing in China," IMF Working Papers 09/169, International Monetary Fund.
  31. Meza, Felipe & Urrutia, Carlos, 2011. "Financial liberalization, structural change, and real exchange rate appreciations," Journal of International Economics, Elsevier, vol. 85(2), pages 317-328.
  32. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
  33. Marquis, Milton & Trehan, Bharat, 2010. "Relative productivity growth and the secular "decline" of U.S. manufacturing," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 67-74, February.
  34. Ana L. Revenga, 1992. "Exporting Jobs?The Impact of Import Competition on Employment and Wages in U. S. Manufacturing," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 255-284.
  35. Prasad, Eswar S., 2009. "Is the Chinese growth miracle built to last?," China Economic Review, Elsevier, vol. 20(1), pages 103-123, March.
  36. Gourinchas, Pierre-Olivier, 1999. "Exchange rates do matter: French job reallocation and exchange rate turbulence, 1984-1992," European Economic Review, Elsevier, vol. 43(7), pages 1279-1316, June.
  37. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: Challenges for macroeconomics and policy," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1426-1461, December.
  38. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
  39. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
  40. Hua, Ping, 2007. "Real exchange rate and manufacturing employment in China," China Economic Review, Elsevier, vol. 18(3), pages 335-353.
  41. Eden, Maya & Nguyen, Ha, 2012. "Correcting real exchange rate misalignment : conceptual and practical issues," Policy Research Working Paper Series 6045, The World Bank.
  42. Lipschitz, Leslie & Rochon, Céline & Verdier, Geneviève, 2011. "A real model of transitional growth and competitiveness in China," Journal of Asian Economics, Elsevier, vol. 22(4), pages 267-283, August.
  43. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, December.
  44. Raghuram G. Rajan, 2006. "Global Imbalances and Financial Reform with Examples from China," Cato Journal, Cato Journal, Cato Institute, vol. 26(2), pages 267-273, Spring/Su.
  45. Ding, Sai & Knight, John, 2009. "Can the augmented Solow model explain China's remarkable economic growth? A cross-country panel data analysis," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 432-452, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:vep:journl:y:2012:v:120:i:1:p:59-106. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vep - Vita e Pensiero)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.