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What Happens to Japan if China Catches Cold? - A causal analysis of the Chinese growth and the Japanese growth


  • Chen Pu

    (Bielefeld University)

  • Hsiao Chihying

    (Bielefeld University)


Many economic professionals like financial analysts, economic journalists and regulatory officers prevailingly regard the fast growth of the Chinese economy as the key factor that leads recently the Japanese economy to recover from the recession that started since beginning of the nineties. This judgement are mostly underpinned by statistical facts that the Chinese economy grew fast in the last two years; the Japanese export to China has experienced a dramatically increase during last two years, China has become now the biggest foreign trade partner of Japan and so on. However, this convincingly sounding arguments are not sufficient to conclude the statement that the Chinese growth leads Japan out of the recession. In fact the statement has essentially a causal character, which means both the interdependence and the directionality of the dependence. While the positive dependence/correlation between the Chinese economy and the Japanese economy is often explicitly documented by statistical facts, arguments about the directionality of the dependence are totally missing. In this paper we conduct an empirical study to investigate the directionality of the dependence in order to justify the statement empirically. Taking a probabilistic causal approach, we infer the causal dependence among the Japanese economy and the Chinese economy based on observed data. We find the evidence that the Chinese growth on average has been a positive cause of the Japanese since the later nineties and the temporary positive casual effect is even more pronounced.

Suggested Citation

  • Chen Pu & Hsiao Chihying, 2005. "What Happens to Japan if China Catches Cold? - A causal analysis of the Chinese growth and the Japanese growth," Econometrics 0510005, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpem:0510005
    Note: Type of Document - pdf; pages: 25

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    References listed on IDEAS

    1. Pu Chen & Peter Flaschel, 2005. "Keynesian Dynamics and the Wage–Price Spiral: Identifying Downward Rigidities," Computational Economics, Springer;Society for Computational Economics, vol. 25(1), pages 115-142, February.
    2. Toichiro Asada & Pu Chen & Carl Chiarella & Peter Flaschel, 2004. "Keynesian Dynamics and the Wage-Price Spiral: A Baseline Disequilibrium Model," Working Paper Series 139, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Asada, Toichiro & Chen, Pu & Chiarella, Carl & Flaschel, Peter, 2006. "Keynesian dynamics and the wage-price spiral: A baseline disequilibrium model," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 90-130, March.
    4. Hoover, Kevin D., 2005. "Automatic Inference Of The Contemporaneous Causal Order Of A System Of Equations," Econometric Theory, Cambridge University Press, vol. 21(01), pages 69-77, February.
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    More about this item


    Inferred Causality; Recovery of the Japanese economy; China Japan relation;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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