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Assessing the vulnerability of emerging Asia to external demand shocks: the role of China

Author

Listed:
  • Daniela Marconi

    () (Bank of Italy)

  • Laura Painelli

    () (Bank of Italy)

Abstract

The paper assesses the vulnerability of China to external shocks via the indirect negative effect of a slow-down in exports on domestic demand for investment. In the last decade China has increased its dependence on external demand, particularly from the advanced countries; at the same time it has become a primary destination market for goods produced in the rest of emerging Asia. Since 2001 investment expenditures have represented a key driver of Chinese GDP growth; as a very large share of activity in the manufacturing sector is export oriented, we expect fixed capital investment in this sector to be highly related to exports. Overcoming serious shortcomings in available data, we estimate an investment equation for the period 1993-2006 and find an elasticity of investment to exports in the manufacturing sector in the range between 0.9 and 1. Taking into account the dominant contribution of capital accumulation to Chinese GDP growth, we conclude that the growth effects of an external demand shock could become significant when taking into account the domestic investment channel.

Suggested Citation

  • Daniela Marconi & Laura Painelli, 2009. "Assessing the vulnerability of emerging Asia to external demand shocks: the role of China," Questioni di Economia e Finanza (Occasional Papers) 38, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_38_09
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    File URL: http://www.bancaditalia.it/pubblicazioni/qef/2009-0038/QEF_38.pdf
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    References listed on IDEAS

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    1. Vansteenkiste, Isabel & Dées, Stéphane, 2007. "The transmission of US cyclical developments to the rest of the world," Working Paper Series 798, European Central Bank.
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    More about this item

    Keywords

    exports; investment; elasticity;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • N6 - Economic History - - Manufacturing and Construction

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