The PRC's long-run growth through the lens of the export-led growth model

We explain China's remarkable growth performance over the last three decades through an export-led growth (ELG) model, where countries need to export to pay for their imports. We show that China's actual long-run growth rate is well approximated by its balance-of-payments equilibrium (BOPE) growth rate, defined as the long-run growth rate consistent with current account equilibrium. This growth rate is given by the ratio of the growth rate of exports to the income elasticity of imports. We estimate the latter using the Kalman filter, which allows us to obtain a time-varying estimate of China's BOPE growth rate. We find that the average value of China's BOPE growth rate during 1981–2016 was about 11 percent but fluctuated significantly over time and declined notably after 2007. It is estimated to be 5.9 percent in 2015. We then discuss the determinants of China's BOPE growth rate and of the income elasticity of imports, with the help of the Bayesian Model Averaging technique. The analysis highlights the role of the composition of aggregate demand as the main driving force, both for its direct effects on the income elasticity of imports, and for the indirect effects on export growth via capital accumulation, in particular fixed asset investment. Our analysis has important implications to understand China's transition to a “New Normal” of a lower growth rate and the effects of the external and internal rebalancing strategy pursued from the early 2000s.     

Exchange Rate,Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model

This article develops a formal model that accounts for the net effect of an exchange rate devaluation on the long-term balance-of-payments constrained growth rate. Such a model investigates how a currency devaluation impacts on the home country non-price competitiveness via changes in income distribution and the rate of technological innovation. The model is built upon two plausible hypotheses. First, it is assumed that the rate of technological innovation is directly related to the income elasticity of demand for exports and inversely related to the income elasticity of demand for imports. Second, it is assumed that a redistribution of income between labor and capital has an ambiguous direct impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth can go either way depending on the institutional framework of the economy.     

影响中国出口贸易的主导因素分析

本文采用自回归分布滞后模型和边限检验方法,利用1997年1季度至2008年4季度的数据估计了中国进出口贸易需求的收入弹性、价格弹性和汇率弹性,结果发现国外收入变化是影响中国出口的主要因素,产品价格对出口的影响较小,而人民币汇率波动对出口的影响不确定。因此,如果采取低价格促进出口的措施,不仅是低效的,而且是得不偿失的。转向以内需驱动为主的经济增长方式,是中国经济发展的必然战略选择。     

How Elastic is East Asian Demand for Consumption Goods?

This paper investigates import demand in East Asia. Estimating exchange rate elasticities for countries in the region is difficult because many imports are used to produce goods for re‐export. An exchange rate appreciation that reduces East Asian exports will also reduce the demand for imported inputs that are used to produce exports. To correct for this bias this paper examines consumption imports, since these goods are intended primarily for the domestic market. Results from several specifications indicate that currency appreciations and increases in income in East Asian countries would significantly increase imports into the region.     

Mexico's Economic Growth and the Balance of Payments Constraint: A cointegration analysis

This paper applies the basic balance-of-payments constraint model (BPCmodel), developed by A.P. Thirlwall, to the analysis of Mexico's economic growth in 1950-96.With the use of unit-root tests and cointegration analysis it estimates the long-run association between the growth of Mexico's real exports and real output in 1950-96, and selected subperiods. The results tend to show significant and positive cointegration between these two variables, thus giving support to the BPC-model as a relevant hypothesis to explain Mexico's long-term economic growth. Moreover, the findings of cointegration tests for selected subperiods suggest that the slowdown in its economic growth since 1982 is associated with an increase in the long-term income elasticity of imports that made more binding the balance-of-payments constraint on the expansion of domestic output.     

A structural economic dynamics approach to balance-of-payments-constrained growth

This paper derives a balance-of-payments equilibrium growthrate analogous to Thirlwall's Law from a Pasinettian multi-sectormacrodynamic framework. The resulting formula, which we callthe Multi-Sectoral Thirlwall's Law, asserts that a country'sgrowth rate of per capita income is directly proportional tothe growth rate of its exports, with such a proportionalitybeing inversely (directly) related to sectoral income elasticitiesof demand for imports (exports). These income elasticities areweighted by coefficients that measure the share of each sectorin total imports and exports, respectively. It is shown thatseveral theoretical, empirical and policy implications can bedrawn from such a structural economic dynamics approach to balance-of-payments-constrainedgrowth.     

Balance-of-payments constrained growth model for the Turkish economy

Economists have investigated the relationship between output and export in order to explain economic growth for long years. Numerous studies have found very close correspondence between the growth of output and export. It is commonly known that Thirlwall's papers indicate very tight relationship between the growth of output and the ratio of the growth of exports to the income elasticity of demand for imports. This paper aims to apply Thirlwall's balance-of-payments-constrained (BPC) model for the Turkish economy for 1968–2011 period. This research also evaluates the procedures of testing Thirlwall's principle by estimation of the income elasticity of demand for imports using the test of stationarity and cointegration methods. The findings are in accordance with the Harrod–Thirlwall growth model. The test results of Johansen cointegration procedure and the comments on these results are presented as well.     

Estimating the import demand function for China

This paper estimates the import demand elasticity for China using three fully efficient cointegrating regressions and the autoregressive distributed lag (ARDL) method. This paper is the first to accommodate the perception of global risk in an investigation of the information transmission mechanism between the relationship import demand and its determinants in China. The empirical results show that real imports are cointegrated with domestic economic activity, real effective exchange rate, and the perception of global risk. Domestic income is found to have a significantly positive effect on imports. Contrary to theory, the real effective exchange rate carries negative coefficients, which suggests that a decrease in external competitiveness (appreciation) will decrease the level of imports in the case of China. One of the reasons for this may be the tied anti-dumping duty on some import items. Since the perception of global risk adversely affects China's aggregated imports, policy-makers should consider the degree to which the perception of global risk affects the implementation of trade policies.     

Commodity Prices and the Dynamics of Inflation in Commodity‐Exporting Nations: Evidence from Australia and Canada*

A commodity‐price boom is under way. What does this boom mean for inflation in countries with substantial net commodity exports? The answer depends on movements in commodity prices, changes in foreign exchange rates and the determinants of domestic price inflation. We estimate equations to provide indications of the strength of each of these forces for both Australia and Canada. The results show that world commodity prices move pro‐cyclically with world industrial production and that rates of change in commodity prices are directly related to domestic inflation in both countries. However, there is an offsetting impact of exchange‐rate changes, which is strong enough in the case of Australia, but not Canada, to substantially eliminate the inflationary impact of a commodity‐price boom.     

欧债危机与中国出口贸易的动态变化——基于细分贸易方式和商品类别的经验研究

本文梳理了欧债危机对出口贸易影响的作用机制,在此基础上采用我国2008年10月至2011年12月的月度数据,从出口的目标市场、细分商品分类以及贸易方式等多个维度进行了深入的实证研究。研究结果表明：（1）外需冲击是欧债危机影响我国出1：2贸易的最主要因素,国外需求对于我国总体出口的短期弹性和长期弹性分别为2．1和3．1,说明欧债危机引起的国外需求下降对总体出口的影响存在一定的时滞效应。（2）汇率和融资成本因素在本轮欧债危机中,对我国出口贸易的影响则相对较小。（3）外需冲击对不同目标市场、不同产品类别以及不同贸易方式出口的影响程度均存在显著的差异。此外,国外需求是我国出口贸易变动的格兰杰原因。     

Aggregated and disaggregated import demand in China: An empirical study

This paper re-estimates both the aggregated and disaggregated import demand functions for China. We consider six groups of goods for the disaggregated imports based on the Standard International Trade Classification (SITC). The empirical findings from the dynamic ordinary least squares and autoregressive distributed lag regressions indicate that there are positive effects of the domestic income on imports. Second, contrary to theory but in line with previous studies, we obtain negative coefficients for the real effective exchange rate—a real appreciation in the Renminbi (RMB) would reduce import demand. Third, the period of the great global recession is negatively associated with the import demand in China. Fourth, the perception of tail risk negatively affects demand for the aggregated imports and five of six groups for the disaggregated imports. Fifth, the exchange rate reform had a positive impact on the aggregated imports, but our estimations report mixed results for the disaggregated imports. Finally, our results indicate that there is no aggregation bias for import demand in China.     

Economic growth and balance-of-payments constraint in Vietnam

Abstract

Our paper examines the long-run relation between economic growth and current account equilibrium in Vietnam, using a multicountry balance-of-payments-constrained growth model. We find that for the whole sample (1985–2010) Vietnam grew less than the rate predicted by the model. We also find that the balance-of-payments-constrained growth rate shifted after the 1997 Asian crisis. Since the relative price effect is neutral, the volume effects dominate in setting the balance-of-payments constraint. On the one hand, owing to the high income elasticities of exports, growth in advanced countries has a strong multiplier effect on the Vietnamese economy. On the other hand, this effect is hindered by a strong “appetite” for imports coming from Asia. Finally, we assess the impact of the current crisis on Vietnam’s growth for the period 2011 to 2017.     

Estimating an Import Demand Function in Developing Countries: A Structural Econometric Approach with Applications to India and Sri Lanka

Owing to the unavailability of time‐series data on the domestic market‐clearing price of imports, the estimation of notional price and income elasticities of aggregate import demand remains a daunting task for a large number of developing countries. This paper develops a structural econometric model of a two‐goods representative agent economy that incorporates a binding foreign exchange constraint at the administered prices of imports. A theoretically consistent parameterization of the “virtual relative price” of imports circumvents the data problem, and thus enables the estimation of income and price responses by cointegration approach. The price and income elasticity estimates for India and Sri Lanka, in contrast to the extant literature, have correct signs, high statistical significance, and plausible magnitudes.     

进口技术外溢、出口相似度与我国出口商品结构优化

笔者研究发现,对发达国家总体而言,进口技术外溢通过进口渗透率来促进出口商品结构优化;而对于G7国家,从其进口产生的技术外溢本身就能促进我国出口商品结构优化,进口渗透率并不是必要的因素.国内研发投入的提高能促进我国出口商品结构的优化.     

Exchange rate and foreign GDP elasticities of Swiss exports across sectors and destination countries

This article uses a detailed breakdown of Swiss trade flows to identify how the impact of the two main determinants of Switzerland’s exports – foreign demand and the real exchange rate – varies across sectors and export destinations. Our main findings are that (i) both foreign demand and exchange rate elasticities vary substantially across both export sectors and export destinations. (ii) Foreign demand trends are more important for structural considerations than the exchange rate. This is due to the fact that exports of the two largest export sectors are relatively sensitive to long-run foreign demand developments while they are relatively insensitive to changes in the exchange rate. (iii) The sectoral structure of Switzerland’s exports has shifted towards goods that have a lower short-run demand elasticity and a higher long-run demand elasticity. Goods exports are thus less influenced by business cycle fluctuations while they benefit more from long-term growth trends. (iv) The export share of sectors with a relatively low exchange rate elasticity has increased. However, this result is mainly driven by the strong rise in exports of chemicals and pharmaceuticals as well as precision instruments and watches, which are also the two important sectors responsible for the Swiss trade surplus.     

Models of export instability and empirical tests for less-developed countries

Alternative models are developed in which export earnings instability is generated by domestic supply, domestic demand or foreign demand fluctuations. Their relative merits over the 1957–1972 period are examined through multiple regression analysis for a sample of 50 LDCs, with breakdown into sub-samples based on the type of commodity exported and the nature of foreign markets. The results suggest that export instability originates mainly from foreign sources - especially variations of market shares in foreign markets and commodity groups. However, domestic supply and demand fluctuations are the dominant factors for countries highly-dependent on food exports. Geographic concentration is an important factor for countries dependent on food exports and developed-country markets.     

Impact of oil price changes on Turkey’s exports

Substantial decline in oil prices observed since the second half of 2014 has brought forward discussions on the impact of oil prices on the external balance. This decline is expected to shift real income from oil exporter countries to oil importer countries. In this context, we study the effect of change in oil prices on Turkey’s exports taking into account the fact that Turkey’s export to oil exporting countries has approximately one-third share in total exports, while export to oil importing countries has a share of two-thirds. At the first step, we analyse the effect of oil prices on economic growth of trade partners of Turkey, where countries are grouped according to their net oil export position. We find that the effect of oil prices on different country groups’ growth is asymmetric. In the second stage, for two groups of countries, we estimate growth-export elasticity through Turkey’s export demand function. Finally, we calculate the net effect of oil prices on exports considering different income effects caused by oil price change on each country groups. Results indicate that the net effect of oil prices on the exports is limited given the current export shares.     

Do Low Wages Stimulate Investment? An analysis of the relationship between distribution and investment in Turkish private manufacturing industry

This study analyses the relative impact of profitability and demand on accumulation in Turkish private manufacturing industry on the basis of the theoretical framework outlined by Marglin & Bhaduri (1990). The main motivation behind this analysis is to shed light on the demand aspects of the slowdown in accumulation in the manufacturing industry despite the increase in profitability during the structural adjustment episode. For this purpose, the ratio of investment to value-added is estimated as a function of the profit share and an accelerator term, namely the growth rate of value-added, using panel data for the 26 industries of the private manufacturing sector. The results show that investment is not responsive to the profit share, whereas growth has a consistent positive impact. This result is significant in explaining the inability of pro-capital income policies to stimulate manufacturing investments throughout the export-promotion era. The export boom maintained by the use of the existing capacity rather than by new investments shows the limits of export demand to compensate for the fall in domestic consumption out of wages. The results make a strong case against the argument that profitability enhances accumulation. Evidence shows that it is not possible to enhance accumulation and long-term potential for growth simply based on promoting profitability, without paying attention to the demand aspects.     

Modelling economic growth with internal and external imbalances: Empirical evidence from Portugal

Thirlwall's Law considers that growth can be constrained by the balance-of-payments when the current account is in permanent deficit. The Law focuses on external imbalances as impediments to growth and does not consider the case where internal imbalances (budget deficits or public debt) can also constrain growth. The recent European public debt crisis shows that when internal imbalances are out of control they can constrain growth and domestic demand in a severe way. The aim of this paper is to fill this gap by developing a growth model in line with Thirlwall's Law that takes into account both internal and external imbalances. The model is tested for Portugal which recently fell into a public debt crisis with serious negative consequences on growth. The empirical analysis shows that the growth rate in Portugal is in fact balance-of-payments constrained and the main drawback is the high import elasticity of the components of demand and in particular that of exports.     

Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance

Most macroeconomic models imply that faster income growth tends either to lower a country’s trade balance by raising its imports with little change to its exports or to reduce its terms of trade in order to maintain balanced trade. Krugman (1989 ) proposed a model in which countries grow by producing new varieties of goods. In his model, faster‐growing countries are able to export these new goods and maintain balanced trade without suffering any deterioration in their terms of trade. This paper analyzes the growth of US imports from different source countries and finds strong support for Krugman’s model.