How Important Is Exports and FDI for China's Economic Growth?

20 Pages Posted: 2 Jun 2013

See all articles by Yuqing Xing

Yuqing Xing

National Graduate Institute for Policy Studies

Manisha Pradhananga

Asian Development Bank Institute

Date Written: May 1, 2013

Abstract

The Global Financial Crisis and the recent slowdown of China’s growth have led to questions about the sustainability of China’s growth. The argument is that, China is too dependent on external demand and that it needs to “rebalance” its economy toward domestic consumption. However, conventional measures of external: net exports-over-GDP and exports-over-GDP are biased and do not accurately measure the contribution of external demand to GDP growth. In this paper, we propose two measures that are simple modifications of the conventional measures. We argue that our proposed measures provide a more accurate estimate of the vulnerability of China’s economy to external shocks, in the form of exports and FDI. Our estimates show that in 2001, exports and FDI accounted for 18.2% of GDP growth and by 2004 the share rose to 49 percent. During 2005-2007, the contribution of exports and FDI to growth remained in the range of 38-40 percent. Our estimates also show that the impressive recovery of the Chinese economy in the post-crisis period owed at least 53% of its growth to exports and FDI. Based on these results, we conclude that the Chinese economy remains highly dependent on external demand in the form of exports and FDI, and re-balancing the economy towards domestic demand has not been achieved yet.

Keywords: Chinese economy, growth, external demand, GDP accounting

JEL Classification: F43, E01

Suggested Citation

Xing, Yuqing and Pradhananga, Manisha, How Important Is Exports and FDI for China's Economic Growth? (May 1, 2013). Available at SSRN: https://ssrn.com/abstract=2272987 or http://dx.doi.org/10.2139/ssrn.2272987

Yuqing Xing (Contact Author)

National Graduate Institute for Policy Studies ( email )

Japan
81-3-6439-6141 (Phone)
81-3-6439-6010 (Fax)

Manisha Pradhananga

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

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