Propagation of Changes in Demand Through International Trade: A Case Study of China

27 Pages Posted: 3 Apr 2019

See all articles by Jochen R. Andritzky

Jochen R. Andritzky

German Council of Economic Experts; International Monetary Fund (IMF)

Bernhard Kassner

Ludwig-Maximilians-Universität München

Wolf Heinrich Reuter

German Council of Economic Experts

Date Written: April 2019

Abstract

China’s economy, the second largest in the world, is undergoing a fundamental transition. Its transition from a strong focus on investment and exports towards a larger share of consumption could have important ramifications for China’s trading partners. Using China as a case study, this paper deploys a sectoral input–output (IO) analysis to take into account higher‐round spillovers from a reduction of import demand or a shift in the composition of the Chinese economy. This approach demonstrates strong indirect effects that exceed by far the initial shock from direct trade links, reflecting China’s integration into a closely knit global value chain. The result suggests that the ongoing transition in China will have important effects on the global economy.

Keywords: China, input–output, shock propagation, trade channel

Suggested Citation

Andritzky, Jochen and Kassner, Bernhard and Heinrich Reuter, Wolf, Propagation of Changes in Demand Through International Trade: A Case Study of China (April 2019). The World Economy, Vol. 42, Issue 4, pp. 1259-1285, 2019, Available at SSRN: https://ssrn.com/abstract=3365197 or http://dx.doi.org/10.1111/twec.12725

Jochen Andritzky (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bernhard Kassner

Ludwig-Maximilians-Universität München ( email )

Wolf Heinrich Reuter

German Council of Economic Experts

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

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