Growing in China’s Shadow

This paper analyses how China’s rapid expansion has affected growth in other developing economies through the trade channel. The empirical strategy is a shift-share design that exploits pre-determined variation across countries in the exposure of their exports to China’s import demand and export supply in global markets, well before China became a dominant trader. The paper shows that China’s rising demand for commodities and intermediate goods has had a favorable impact on other developing countries’ growth, while intensified competition from its manufacturing exports has had an adverse effect. The former effect is stronger and therefore the net effect has been positive for most countries. The positive impact is, however, becoming weaker as China’s growth slows down, and developing countries’ longer term growth may also be influenced by the changes in their economic structures induced by China’s trade expansion.