International Effects of China's Rise and Transition: Neoclassical and Keynesian Perspectives
CAMA Working Paper 5/2014
49 Pages Posted: 16 Jul 2013 Last revised: 16 Jan 2014
Date Written: January 16, 2014
Abstract
Opinion over the global implications of China‘s rise is divided between critics, who see it as having developed at the expense of both investment and employment in the US, Europe and Japan and proponents who emphasise improvements in the terms of trade and reductions to the cost of financing that stem from China‘s supply of light manufactures, its demand for Western capital and luxury goods and its high saving. The criticism implies Keynesian assumptions while proponents take a neoclassical perspective. In this paper, both are embodied in a global macro model that emphasises bilateral linkages via both trade and investment, with monetary spill-overs represented by globally integrated bond markets. Net gains are suggested for the US and Europe from China‘s successful export-oriented growth, though there are partially offsetting Keynesian effects. China‘s recent slower, more consumption focussed, growth appears also to be beneficial in those regions and in Japan notwithstanding terms of trade losses.
Keywords: China, imbalances, saving, monetary policy, spill-overs
JEL Classification: F42, F43, F47
Suggested Citation: Suggested Citation