Sense and Nonsense on Asia's Export Dependency and the Decoupling Thesis

Hong Kong Monetary Authority Working Paper No. 03/2007

27 Pages Posted: 5 Sep 2007

See all articles by Dong He

Dong He

Hong Kong Monetary Authority; Hong Kong Institute for Monetary Research (HKIMR)

Lillian Cheung

Hong Kong Monetary Authority

Jian Chang

Hong Kong Monetary Authority

Date Written: April 2007

Abstract

It has often been argued that East Asia needs to switch from an export-led growth model to a domestic-demand led growth model so as to reduce its vulnerability to a sharp slowdown in the US economy. This paper argues that, indeed, in the foreseeable future, East Asia's business cycle is unlikely to decouple with that of the US, but the switch-of-growth-model argument is problematic because it mixes up the effects of external trade on an economy's cyclical developments and its long-term growth potential. The paper argues that the desirable way to reduce external vulnerabilities is to diversify export markets and to further strengthen domestic institutions and policies in order to reduce the impact of temporary shocks, not by reducing the degree of openness or the share of exports in GDP. The paper further agues that the rising size of domestic demand in Mainland China will overtime help the rest of the region to diversify its export markets away from the major industrialized countries.

Keywords: Export-led growth, domestic demand-led growth, decoupling

JEL Classification: F13, F43, O24, O11

Suggested Citation

He, Dong and Cheung, Lillian and Chang, Jian, Sense and Nonsense on Asia's Export Dependency and the Decoupling Thesis (April 2007). Hong Kong Monetary Authority Working Paper No. 03/2007. Available at SSRN: https://ssrn.com/abstract=1012231 or http://dx.doi.org/10.2139/ssrn.1012231

Dong He (Contact Author)

Hong Kong Monetary Authority

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Hong Kong Institute for Monetary Research (HKIMR)

3 Garden Road, 8th Floor
Hong Kong
China

Lillian Cheung

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Jian Chang

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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