The impact of volatility on growth in China

China’s path to emerging as the world’s second largest economy has not been a smooth one. This paper considers whether the volatility of growth has had an impact on the trend rate of growth. In doing so it aims to promote a better understanding of the determinants of China’s impressive trend rate of growth and also shed light on questions such as whether the trend rate of growth might have been even higher had the government and central bank been better able to offset volatility. Utilizing a GARCH-M model, the results of the empirical analysis suggest that the impact of volatility has been either positive or insignificant, but not negative.