Economics in the Backyard: How Much Convergence is There between China and Her Special Regions?

43 Pages Posted: 1 Jun 2009

See all articles by Andrew J. Hughes

Andrew J. Hughes

Cardiff Business School; Centre for Economic Policy Research (CEPR); Vanderbilt University - College of Arts and Science - Department of Economics

Christian R. Richter

Loughborough University - Department of Economics

Abstract

This paper tests the hypothesis that the links and dependency relationships between China and her special regions have changed over the past 20 years with the industrialisation of China, and the emergence of Taiwan as a source of investment and sophisticated manufactures, and Hong Kong as financial centre and supplier of services. Has this changed the size and direction of spillovers in the region, and has it curtailed or eliminated American economic leadership? We use time-varying spectral methods to decompose the links between six advanced Asian economies and the US. We find: (a) the links with the US have been weakening, while those within a bloc based on China have strengthened; (b) that this is not new – it has been happening since the 1980s, but has now been reversed by the surge in trade; (c) that Taiwan is more integrated with, and dependent on, the Chinese economy, while Hong Kong continues her separate development based on specialisation and comparative advantage; (d) that the links with the US are rather complex, with the US able to shape the cycles elsewhere through her control of monetary conditions, but the China zone able to control the size of their cycles; and (e) there appears to be no real evidence that pegged exchange rates encourage convergence; in fact the reverse may be true.

Suggested Citation

Hughes Hallett, Andrew J. and Richter, Christian R., Economics in the Backyard: How Much Convergence is There between China and Her Special Regions?. World Economy, Vol. 32, Issue 6, pp. 819-861, June 2009, Available at SSRN: https://ssrn.com/abstract=1411423 or http://dx.doi.org/10.1111/j.1467-9701.2009.01171.x

Andrew J. Hughes Hallett (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Cardiff CF10 3EU
United Kingdom
+44 292 087 001 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-8539 (Phone)
615-343-8495 (Fax)

Christian R. Richter

Loughborough University - Department of Economics ( email )

York House
Loughborough LE11 3TU
Great Britain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
281
PlumX Metrics