How Important are Exports and Foreign Direct Investment for Economic Growth in the People's Republic of China?

18 Pages Posted: 2 Jul 2013

See all articles by Yuqing Xing

Yuqing Xing

National Graduate Institute for Policy Studies

Manisha Pradhananga

Asian Development Bank Institute

Date Written: July 1, 2013

Abstract

The global financial crisis and the recent growth slowdown in the People’s Republic of China (PRC) have led to questions about the sustainability of the PRC’s growth. The commonly used argument is that the PRC is too dependent on external demand and that it needs to rebalance its economy toward domestic consumption. However, conventional measures of external demand — share of net exports and exports as a share of gross domestic product (GDP) — are biased and do not accurately measure the contribution of external demand to GDP growth. In this paper, the authors propose two measures that provide a more accurate estimate of the vulnerability of the PRC economy to external shocks, in the form of sudden drops in exports and foreign direct investment (FDI). Based on their findings, the authors conclude that the PRC economy remains highly dependent on external demand in the form of exports and FDI, and rebalancing the economy toward domestic demand has not yet been achieved.

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

JEL Classification: F43, E01

Suggested Citation

Xing, Yuqing and Pradhananga, Manisha, How Important are Exports and Foreign Direct Investment for Economic Growth in the People's Republic of China? (July 1, 2013). ADBI Working Paper 427. Available at SSRN: https://ssrn.com/abstract=2288327 or http://dx.doi.org/10.2139/ssrn.2288327

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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