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Analysing the Short Run Effects of China’s Economic Reform Agenda

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  • Rod Tyers

Abstract

China’s size limits its capacity to source further growth from exports and so the inevitable turn inward is in progress, as suggested by declining gross flows on its balance of payments relative to its GDP. Thus far, key home policy drivers have been fiscal expansion and public investment, though provincial indebtedness will constrain these in future and growth will be driven by the government’s reform agenda, which includes further industrial reform and “internationalisation”. The short run effects of these domestic policy and external shocks are examined using a model of the Chinese economy that takes explicit account of oligopoly behaviour. The results confirm that further fiscal expansions, even with large public investment components, will not contribute the major share of new growth, but industrial reform in heavy manufacturing and services would reduce costs and foster growth in output, private consumption and modern sector employment. At the same time, while China’s private investment, and hence its overall performance, will be sensitive to the uncertain effects of internationalisation increased nominal exchange rate flexibility would offer a reliable cushion.

Suggested Citation

  • Rod Tyers, 2014. "Analysing the Short Run Effects of China’s Economic Reform Agenda," CAMA Working Papers 2014-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2014-29
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-03/29_2014_tyers.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    China; fiscal policy; industry policy reform; oligopoly; price caps; privatisation; internationalisation; capital account liberalization;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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