IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1151.html
   My bibliography  Save this paper

The Chinese Impact on GDP Growth and Inflation in the Industrial Countries

Author

Listed:
  • Christian Dreger
  • Yanqun Zhang

Abstract

The integration of China into the global economy is one of the most spectacular events in economic history. This paper investigates to what extent this process affects output growth and inflation in the advanced countries. A GVAR model is specified to explore interdependencies between business cycles in China and industrial countries, including the US, the euro area and Japan. For robustness, the results are compared to those obtained from leading structural models, such as NiGEM and OEF. Evidence is based on the responses to a Chinese demand shock arising from the recent fiscal stimulus program. The results show that the impact on output growth in the advanced economies can be quite substantial, especially for the Asian region. The expansionary effects in the US and the euro area responses are lower, as trade linkages are less intensive. The multipliers are also reduced by a sizeable effect on inflation, as Chinese firms participate in international production chains.

Suggested Citation

  • Christian Dreger & Yanqun Zhang, 2011. "The Chinese Impact on GDP Growth and Inflation in the Industrial Countries," Discussion Papers of DIW Berlin 1151, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1151
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.378381.de/dp1151.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Patrick J. Kehoe, 2004. "Patrick Kehoe's comment on \\"Determinants of business cycle comovement: a robust analysis\\" by Marianne Baxter and Michael Kouparitsas," Staff Report 349, Federal Reserve Bank of Minneapolis.
    3. Prasad, Eswar S., 2009. "Is the Chinese growth miracle built to last?," China Economic Review, Elsevier, vol. 20(1), pages 103-123, March.
    4. repec:hhs:bofitp:2008_007 is not listed on IDEAS
    5. Martin, Feldstein, 2011. "The role of currency realignments in eliminating the US and China current account imbalances," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 731-736, September.
    6. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
    7. M. Ayhan Kose & Eswar S. Prasad & Marco E. Terrones, 2003. "How Does Globalization Affect the Synchronization of Business Cycles?," American Economic Review, American Economic Association, vol. 93(2), pages 57-62, May.
    8. Mike Artis & Hans-Martin Krolzig & Juan Toro, 2004. "The European business cycle," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 1-44, January.
    9. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
    10. Baxter, Marianne & Kouparitsas, Michael A., 2005. "Determinants of business cycle comovement: a robust analysis," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 113-157, January.
    11. Barry Eichengreen & Hui Tong, 2007. "Is China’s FDI Coming at the Expense of Other Countries?," Chapters, in: Klaus Liebscher & Josef Christl & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), Foreign Direct Investment in Europe, chapter 11, Edward Elgar Publishing.
    12. M. Ayhan Kose & Christopher Otrok & Eswar Prasad, 2012. "Global Business Cycles: Convergence Or Decoupling?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 511-538, May.
    13. Jarko Fidrmuc & Iikka Korhonen & Ivana Bátorová, 2013. "China in the World Economy: Dynamic Correlation Analysis of Business Cycles," CESifo Economic Studies, CESifo Group, vol. 59(2), pages 392-411, June.
    14. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    15. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    16. Dong He & Zhiwei Zhang & Wenlang Zhang, 2009. "How Large Will Be The Effect Of China'S Fiscal Stimulus Package On Output And Employment?," Pacific Economic Review, Wiley Blackwell, vol. 14(5), pages 730-744, December.
    17. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460, December.
    18. Mr. Emanuele Baldacci & Ding Ding & Mr. David Coady & Giovanni Callegari & Pietro Tommasino & Jaejoon Woo & Mr. Manmohan S. Kumar, 2010. "Public Expenditures on Social Programs and Household Consumption in China," IMF Working Papers 2010/069, International Monetary Fund.
    19. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    20. Kwanho Shin & Chan‐Hyun Sohn, 2006. "Trade and Financial Integration in East Asia: Effects on Co‐movements," The World Economy, Wiley Blackwell, vol. 29(12), pages 1649-1669, December.
    21. Matthieu Bussière & Bernd Schnatz, 2009. "Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark," Open Economies Review, Springer, vol. 20(1), pages 85-111, February.
    22. repec:zbw:bofitp:2008_007 is not listed on IDEAS
    23. Peltonen, Tuomas A. & Pula, Gabor, 2009. "Has emerging Asia decoupled? An analysis of production and trade linkages using the Asian international input-output table," Working Paper Series 993, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ansgar Belke & Christian Dreger & Irina Dubova, 2019. "On the exposure of the BRIC countries to global economic shocks," The World Economy, Wiley Blackwell, vol. 42(1), pages 122-142, January.
    2. Georgios Magkonis & Simon Rudkin, 2019. "Does Trilemma Speak Chinese?," Working Papers in Economics & Finance 2019-01, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    3. Ágnes Csermely & Péter Harasztosi & Gábor Pellényi, 2012. "Opportunities and challenges – the impact of Chinese competition on Hungarian manufacturing," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), European Integration in a Global Economy, chapter 11, pages 106-118, Edward Elgar Publishing.
    4. Christian Dreger & Malte Rieth & David Pothier, 2015. "Is Globalization Reducing the Ability of Central Banks to Control Inflation? In-Depth Analysis," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 106, number pbk106.
    5. Matkovskyy, Roman, 2012. "Прогнозування Реакції Економіки України На Економічні Шоки В Сусідніх Державах: Глобальна Векторна Авторегресійна Модель «Україна-Сусіди» [Forecasting the Responses of Ukraine to Economic Shocks in," MPRA Paper 44717, University Library of Munich, Germany, revised Nov 2012.
    6. Feldkircher, Martin & Korhonen, Iikka, 2012. "The rise of China and its implications for emerging markets: Evidence from a GVAR model," BOFIT Discussion Papers 20/2012, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. repec:zbw:bofitp:2012_020 is not listed on IDEAS
    8. repec:hhs:bofitp:2012_020 is not listed on IDEAS
    9. Christian Dreger & Yanqun Zhang, 2014. "On the relevance of exports for regional output growth in China," Applied Economics, Taylor & Francis Journals, vol. 46(35), pages 4302-4308, December.
    10. Almansour, Aseel & Aslam, Aqib & Bluedorn, John & Duttagupta, Rupa, 2015. "How vulnerable are emerging markets to external shocks?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 460-483.
    11. Malte Rieth, 2015. "Can Central Banks Successfully Lean against Global Headwinds?," DIW Roundup: Politik im Fokus 88, DIW Berlin, German Institute for Economic Research.
    12. L. Salzmann, 2018. "China’s Economic Slowdown and International Inflation Dynamics," Working Papers 2018.03, International Network for Economic Research - INFER.
    13. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.
    14. Salzmann, Leonard, 2020. "China's Economic Slowdown and International Inflation Dynamics," EconStor Preprints 176757, ZBW - Leibniz Information Centre for Economics, revised 2020.
    15. Martin Feldkircher & Iikka Korhonen, 2014. "The Rise of China and Its Implications for the Global Economy: Evidence from a Global Vector Autoregressive Model," Pacific Economic Review, Wiley Blackwell, vol. 19(1), pages 61-89, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:wsr:wpaper:y:2013:i:116 is not listed on IDEAS
    2. Dreger, Christian & Zhang, Yanqun, 2014. "Does the economic integration of China affect growth and inflation in industrial countries?," Economic Modelling, Elsevier, vol. 38(C), pages 184-189.
    3. Cesa-Bianchi, Ambrogio, 2013. "Housing cycles and macroeconomic fluctuations: A global perspective," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 215-238.
    4. Fidrmuc, Jarko & Korhonen, Iikka, 2010. "The impact of the global financial crisis on business cycles in Asian emerging economies," Journal of Asian Economics, Elsevier, vol. 21(3), pages 293-303, June.
    5. Fidrmuc, Jarko & Korhonen, Iikka, 2010. "The impact of the global financial crisis on business cycles in Asian emerging economies," Journal of Asian Economics, Elsevier, vol. 21(3), pages 293-303, June.
    6. repec:zbw:bofitp:2009_011 is not listed on IDEAS
    7. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
    8. Wälti, Sébastien, 2010. "No decoupling, more interdependence: business cycle comovements between advanced and emerging economies," MPRA Paper 20869, University Library of Munich, Germany.
    9. Jarko Fidrmuc & Iikka Korhonen & Ivana Bátorová, 2013. "China in the World Economy: Dynamic Correlation Analysis of Business Cycles," CESifo Economic Studies, CESifo Group, vol. 59(2), pages 392-411, June.
    10. Miankhel, Adil Khan & Kalirajan, Kaliappa & Thangavelu, Shandre, 2010. "Integration, decoupling and the global financial crisis: A global perspective," MPRA Paper 22837, University Library of Munich, Germany.
    11. Mattia Guerini & Duc Thi Luu & Mauro Napoletano, 2023. "Synchronization patterns in the European Union," Applied Economics, Taylor & Francis Journals, vol. 55(18), pages 2038-2059, April.
    12. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2016. "The World Is Not Enough! Small Open Economies and Regional Dependence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 168-195, January.
    13. Mao Takongmo, Charles-O. & Touré, Adam, 2023. "Trade openness and connectedness of national productions: Do financial openness, economic specialization, and the size of the country matter?," Economic Modelling, Elsevier, vol. 125(C).
    14. S颡stien Wälti, 2012. "The myth of decoupling," Applied Economics, Taylor & Francis Journals, vol. 44(26), pages 3407-3419, September.
    15. repec:bny:wpaper:0005 is not listed on IDEAS
    16. Belke, Ansgar & Rees, Andreas, 2009. "The Importance of Global Shocks for National Policy Makers - Rising Challenges for Central Banks," Ruhr Economic Papers 135, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    17. Eickmeier, Sandra, 2007. "Business cycle transmission from the US to Germany--A structural factor approach," European Economic Review, Elsevier, vol. 51(3), pages 521-551, April.
    18. Ana Beatriz Galvão & Michael Artis & Massimiliano Marcellino, 2007. "The transmission mechanism in a changing world," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 39-61.
    19. repec:hal:spmain:info:hdl:2441/5q8fnecj1u87ka099dc571bhi2 is not listed on IDEAS
    20. Olfa Manai Daboussi & Amira Majoul, 2014. "The transmission effects of the subprime crisis to emerging markets: A global VAR analysis," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(9), pages 427-438, September.
    21. repec:spo:wpmain:info:hdl:2441/5q8fnecj1u87ka099dc571bhi2 is not listed on IDEAS
    22. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    23. Ageliki Anagnostou & Ioannis Panteladis & Maria Tsiapa, 2015. "Disentangling different patterns of business cycle synchronicity in the EU regions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 615-641, August.
    24. Shruthi Jayaram, 2009. "Examining the Decoupling Hypothesis for India," Working Papers id:2119, eSocialSciences.
    25. repec:hhs:bofitp:2008_007 is not listed on IDEAS
    26. Yifan Shen & Tilak Abeysinghe, 2021. "International Transmission Mechanism And World Business Cycle," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 510-531, January.

    More about this item

    Keywords

    GVAR; Chinese economy; shock transmission;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1151. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.