Foreign Trade and China s Economic Development: A Time-Series Analysis

Transcription

1 Volume 25, Number 1, June 2000 Foreign Trade and China s Economic Developmen: A Time-Series Analysis Shuanglin Lin This paper examines he relaionship beween rade and economic growh based on China s naional daa for he period of 1952 o I is found ha he growh rae of expors, he growh rae of impors, and he growh rae of he volume of rade are posiively relaed o he growh rae of per capia GDP. I is also found ha he labor force growh was posiively relaed o economic growh. I. Inroducion The effec of foreign rade on economic growh has been an imporan subjec of debae for several decades. Many prior sudies have found a posiive relaionship beween he growh rae of rade and he growh rae of oupu. Sudies by Balassa (1978, 1985), Feder (1983), Ram (1985), and Edwards (1992) are based on cross-secional daa covering various groups of developing counries for various ime periods, while sudies by Krueger (1978) and Ram (1987) are based on ime-series daa. These sudies sugges ha developmen sraegies be based on rade liberalizaion, including reducion of he rade barriers and he opening of inernaional rade o foreign compeiion. Oher economiss argued ha rade expansion may no always be a good policy for all counries a all imes (see, for example, Kavoussi (1985), Gray and Singer (1988), Sachs (1987, 1989), and Taylor (1991)). 1 This paper examines he relaionship beween he growh rae of expors, he growh rae of impors, and he growh rae of he volume of rade and he growh rae of per capia GDP based on he Chinese naional daa for he period 1952 o For a long ime in recen hisory, China adoped a close-door and isolaion policy. In 1949, he People s Republic of China was founded. In he early 1950s, rade wih he oher socialis counries expanded rapidly. Bu he expansion of rade sopped due o he deerioraion of he relaionship wih he Sovie Union. From he end of 1950s o he end of 1970s, China experienced coninuous domesic poliical movemens (e.g., he Grea Leap Professor, Deparmen of Economics, CBA 512, Universiy of Nebraska, Omaha, NE The auhor hanks Edior Woo Jung and an anonymous referee for helpful commens. 1. The direcion of causaliy has always been an issue of debae. I is nonrivial o argue ha GDP growh causes expors growh. Jung and Marshall (1985) used annual daa on 37 counries o perform Granger causaliy ess. They found ha in mos cases i was no possible o esablish unequivocally he direcion of causaliy, and in only four cases i was found ha expor growh caused GDP growh. 145

2 Forward movemen, he Socialis Educaion Movemen, and he Culural Revoluion). The self-desrucive poliical movemens placed he Chinese economy in chaos and made foreign rade sagnan. In he lae 1970s, China adoped an ouward-oriened developmen policy. From 1978 o 1997, real expors increased from billions of yuan o billions of yuan, a 24-fold increase. The expor-gdp raio rose from 4.63% in 1978 o 20.3% in Thus, expors increased faser han GDP. 2 A sudy of he Chinese experience will provide some policy implicaions for large developing counries as well as for oher former socialis counries. The res of his paper is organized as follows. Secion II presens regression models and discusses daa and defines variables. Secion III analyzes regression resuls based on he naional daa from 1952 o Secion IV provides conclusions. II. Regression Model, Daa, and Definiion of Variables Foreign rade benefis a developing counry hrough obaining advanced echnology and he flow of ideas embodied in he impored producs. Foreign rade also increases efficiency of domesic firms, which are forced o improve producion echnologies o compee in he domesic and inernaional markes. Foreign rade may also be accompanied by foreign direc invesmen, which increases a developing counry s capial sock and he level of echnology. The heoreical framework is based on an aggregae producion funcion in which capial, labor, governmen expendiures, and he level of echnology are inpus. In his paper, he level of foreign rade approximaes he level of echnology. The following regression equaion will be used in our empirical analysis: 3 y & a + a T& + a L& + a i + a g + a P& + a d + u, (1) = where y& is he rae of per capia oupu growh, T & can be eiher he growh rae of expors, he growh rae of impors, or he growh rae of he volume of rade, i is he invesmen share in oupu, g is governmen expendiure share in oal oupu, L & is he growh rae of he labor force, P & is he growh of he populaion, and d is a dummy variable, which disinguishes he pre- and pos-reform periods. a, he coefficien on capial, should be 1 posiive. a, he oupu elasiciy of labor, should be posiive heoreically. a, he 2 3 coefficien of invesmen should be posiive. a, he coefficien of he size of governmen, 4 can be eiher posiive or negaive depending on produciviy of governmen expendiures. 2. Saisical Yearbook of China, 1997, The regression equaion can be obained by dividing he oal oupu by he populaion, differeniaing he resuled funcion, and adding a consan erm, a dummy variable, and a sochasic erm. Previous sudies of economic growh based on he aggregae producion echnology include Feder (1983) and Ram (1987), Aschauer (1989), and Romer (1990). A deailed derivaion is available on reques. 146

3 LIN: FOREIGN TRADE AND CHINA S ECONOMIC DEVELOPMENT a, coefficien on he populaion growh, can be eiher negaive or posiive heoreically. 4 5 a, he coefficien on he dummy variable could be posiive. 6 Mos of he daa were from he recenly published saisical book, The Gross Domesic Produc of China ( ) and various issues of he Saisical Yearbook of China. 5 The definiion of each variable is as follows. y& : Annual growh rae of real per capia GDP. I is calculaed as follows: y& ln y ) ln( y ), = ( 1 where y and y is he real per capia GDP for year 1 and year, respecively. 1 T & : Annual growh rae of he volume of rade (real expors plus real impors). I is calculaed as follows: T & = ln( T ) ln( T ), where T ( T = X + M ) and T are volumes of rade 1 1 for year and year 1, respecively. X & : Annual growh rae of real expors. I is calculaed as follows: X & ln X ) ln( X ), where X and 1 = ( 1 X are real expors for year and year 1, respecively. M & : Annual growh rae of real impors. I is calculaed as follows: M & = ln( M ) ln( M ), 1 where M and M are real impors for year and year 1, respecively. 1 P & : Annual growh rae of populaion. I is calculaed as follows: P & ln POP) ln( POP ), where POP and 1 = ( 1 POP are he populaion for year and year 1, respecively. L & : Annual growh rae of he labor force. I is calculaed as follows: L & ln L ) ln( L ), where L and 1 = ( 1 L are he labor force for year and year 1, respecively. i : The share of invesmen in GDP. I is calculaed as follows: i = I / Y, where I is oal invesmen in year, and Y is GDP in year. g : The share of governmen spending in GDP. I is calculaed as follows: g = G / Y, where G is governmen spending in year, and Y is GDP in year. The mean of he annual growh rae of expors, X &, was 10.7%, and he mean of he annual growh rae of impors, M &, was 9.4%. Boh he growh rae of expors and he growh rae of impors reached heir lowes poins in 1961 (he year immediaely afer he Grea Leap Forward movemen), wih he growh rae of expors being 43.1% and he growh rae of impors being 56.6%. Expors and impors have grown rapidly since Based on he neoclassical producion funcion, wih labor, capial, ec. as inpus, he per capia oupu (oal oupu divided by he populaion, as well as he growh rae of per capia oupu does depend on labor force growh as well as populaion growh. In empirical sudies of economic growh, economiss usually use only populaion, eiher because he daa on labor force is no available or because he growh rae of labor and he growh rae of populaion are correlaed. In he Chinese case, boh he growh rae of labor and he growh rae of he populaion are available, and he wo are no highly correlaed. Therefore, we pu boh in some regression equaions. We also presened regression resuls wihou populaion growh. 5. Chow (1993) argued ha Chinese saisics, by and large, are inernally consisen and accurae enough for empirical work. 147

4 The srucure of expors and impors has also changed dramaically. Primary produc expors have been declining and manufacured produc expors have been growing. Table 1 shows he oal value of expors and impors by caegory. In 1980, primary produc expors accoun for more han 50% of oal expors, while in 1997 i was only 13.1% of oal expors. Year Primary Producs Table 1 Toal Value of Impors and Expors by Caegory (Billions of yuan a 1978 consan price) Expors Impors Manufacured Machinery and Primary Manufacured Producs Transporaion Producs Producs Machinery and Transporaion Equipmen Equipmen Noe: Calculaed by he auhor based on he daa are from Saisical Yearbook of China, 1995, 1997, The daa were given in US dollars originally and were convered o yuan by using he US dollar-chinese yuan exchange raes. The exchange raes are calculaed based on he oal expors and oal impors daa. General reail price index was used o conver he figures in 1978 consan price. The daa for years before 1980 are no available. The mean of he share of governmen spending in GDP (he size of governmen) was 24.7%. The share of governmen spending in income reached 44.9% in In 1984, he share of governmen spending in GDP was 30.9%. The size of governmen has been decreasing since hen. In 1997, he share of governmen spending in GDP was only 12.3%. The reason is ha ax revenues in China have no grown proporionally wih he GDP. The mean of he invesmen share in GDP was 25.9%. The share of invesmen in GDP was generally low before 1975, excep 1958, 1959 and 1960 (he period called he Grea Leap Forward ). During his period, he governmen emphasized heavy indusry, and allocaed a lo of resources in indusrial secors. The share of invesmen in GDP was 148

5 LIN: FOREIGN TRADE AND CHINA S ECONOMIC DEVELOPMENT generally high in he 1980s and he 1990s. The invesmen share in GDP reached 37.5% in 1993, he highes in he pas 40 years. The average annual growh rae of populaion was 1.7% from 1952 o The populaion growh rae was down o 1.5% in 1960, reached is maximum in 1965 a 2.91%, and was 1.05% in The average annual growh rae of he labor force was 2.69% from 1952 o The growh rae of he labor force reached 11.25% in 1958 (he beginning of he Grea Leap Forward movemen), and i was negaive in 1959, 1960, and There exiss srong muli-collineariy beween expors and impors, wih he correlaion coefficien being This is no surprising, since he rade accoun never had a large surplus or defici in China. Therefore, expors and impors were highly correlaed. Thus, in regression analyses, we will no pu hese srongly correlaed variables in he same regression. III. Regression Resuls Table 2 shows he regression resuls concerning he relaionship beween rade and he growh rae of per capia GDP. In regression (1), he coefficien for he growh rae of expor, X &, is posiive and saisically significan, wih he -value being In regression (2), he esimae of he coefficien of he growh rae of impors, M &, is posiive and saisically significan, wih he -value being In regression (3), he coefficien of he growh rae of he volume of rade, T &, is 0.30 and -value is Thus, all he rade variables are posiively relaed o he growh rae of per capia GDP. Table 2 Regression Resuls on Foreign Trade and per Capia GDP Growh ( ) a eq. inercep X & M & T & L & i g P & dummy (1) ( 2.14) (2) ( 1.19) (3) ( 1.67) (4) ( 3.04) (5) ( 2.33) (6) ( 2.51) (7) ( 2.66) (4.39) ** (2.85) ** (2.32) * (1.11) (5.49) ** (3.03) ** (1.63) (0.23) (5.58) ** (2.90) ** (1.89) (0.71) (3.30) ** (2.26) * (3.18) ** (1.39) (4.49) ** (2.41) * (2.65) ** (0.64) (4.43) ** (2.36) * (2.67) * (1.02) (2.99) ** (2.23) * (3.06) ** (0.93) (8) ( 2.10) * (4.20) ** (2.37) * (2.53) * (0.48) 2 R obs (2.07) * (2.09) * (1.84) (1.82) (1.927) ( 0.05) (0.05)

6 Table 2 (Coninued) eq. inercep X & M & T & L & i g P & 2 dummy R obs. (9) ( 2.06) * (4.15) ** (2.34) * (2.64) * (0.48) (1.52) ( 0.30) Noes: a All he variables are defined in Secion 3, where X & = he growh rae of real expors; M & = he growh rae of real impors; T & = he growh rae of he volume of rade (expors + impors). Y & = annual growh rae of real per capia GDP; L & = annual growh rae of labor force; i = share of invesmen in GDP; g = share of governmen spending in GDP; P & = annual growh rae of populaion; dummy = dummy variable wih a value of 1 for he years of and 0 oherwise. Deailed explanaions of he variables are provided in Secor 2. obs = number of observaions. -values are given in he parenheses. ++ Saisically significan a he 10% level. ** Saisically significan a he 5% level. ** Saisically significan a he 1% level. Also, regression (1)-(3) include he growh rae of he labor force, L &, he share of invesmen in GDP, i, and he share of governmen spending in GDP, g. The coefficien for he growh rae of he labor force is posiive and saisically significan in all regressions. This is consisen wih he resuls obained by mos empirical sudies of growh. The labor force has grown faser han he populaion because more and more women joined he labor force. The share invesmen in GDP is posiively relaed o he growh rae of per capia GDP, and he -value is high in mos regressions, indicaing invesmen is imporan for growh. The share of governmen expendiures in GDP has a posiive bu insignifican coefficien. This resul is conrary o many sudies based on cross-counry regressions. Landau (1983), Barro (1989), and Romer (1990) found ha he share of governmen spending is significanly negaively relaed o he growh rae of per capia GDP. Oher sudies, including Levine and Renel (1992), found ha he coefficien of he share of governmen spending in GDP is negaive, bu i is no saisically significan. Barro (1990), in an endogenous growh model, showed ha when governmen spending share in oupu is small, hen an increase in governmen spending will increase he growh rae; while when he governmen spending share in oupu is large, hen an increase in governmen spending will reduce he growh rae of oupu. Thus, here exiss an opimal size of governmen. Based on his heory, governmen spending in China is no high enough o reduce he growh rae. In regression (4)-(6), we include he growh rae of populaion, P &. 6 The rae of populaion growh and he rae of labor force growh can be subsanially differen since i akes many years for he newborn o join he labor force. Many empirical sudies assumed ha he populaion growh and he labor force growh are srongly correlaed and used he growh rae of populaion o represen he growh rae of he labor force (see Romer (1990)). In fac, in he Chinese case, he Pearson correlaion coefficien beween he growh rae of 6. Based on a neoclassical producion funcion wih labor as one of he inpus, we can show ha he growh rae of per capia oupu depends on boh he growh rae of labor and he growh rae of populaion. 150

7 LIN: FOREIGN TRADE AND CHINA S ECONOMIC DEVELOPMENT labor and he growh rae of he populaion is no high a all (abou 0.34). Wih he growh rae of populaion included in regressions (4)-(6), he coefficiens of growh raes of expors, impors and oal volume of rade remain posiive and highly significan. The coefficien for he share of invesmen in GDP remains posiive bu -value increases significanly. The coefficien of he share of governmen expendiure in GDP is sill posiive bu insignifican. The populaion growh rae is posiively relaed o he growh rae of per capia GDP. This finding is conrary o he view of many policy makers, as well as he empirical finding by Barro (1989) where he growh rae of populaion is significanly negaively relaed o he rae of economic growh in cross-counry analyses. Bu i is consisen wih mos of he empirical findings in he lieraure (see Johnson (1993) for a discussion of his issue). In regressions (7)-(9), we add a dummy variable o disinguish he pre- and pos-reform periods (before 1979 and afer 1979). The dummy variable is used because some oher facors besides he variables included here may affec economic growh. All he rade variables, he growh rae of he labor force, and he share of invesmen in GDP remain highly significan. However, o our surprise, he dummy variable, dummy, is posiive bu saisically insignifican. This ells us ha all he reform effors migh be well represened by he rade variable and he oher variables. IV. Conclusion This paper has examined he relaionship beween rade and economic growh based on China s naional daa for he period of 1952 o I has been found ha he growh rae of expors, he growh rae of impors, and he growh rae of he volume of rade are posiively relaed o he growh rae of per capia GDP. I has also been found ha invesmen and labor force growh were posiively relaed o economic growh. The regression resuls appear o be very robus. These resuls sugges ha, o keep he economy a a high level of growh, China should acively engage in he world economy and coninue is rade promoion policy. These resuls also sugges ha oher developing counries base heir developing sraegy on rade promoion. 151

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9 LIN: FOREIGN TRADE AND CHINA S ECONOMIC DEVELOPMENT Sachs, J.D. (1987), Trade and Exchange Rae Policies in Growh Oriened Adjusmen Programs, in Growh Oriened Growh Programs, eds. by Viorio Corbo a, Morris Goldsein, and Mohsin Khan, Washingon, DC: IMF. (1989), The Deb Overhang of Developing Counries, In Deb, Sabilizaion and Developmen Essays in Memory of Carlos Diaz-Alejandro, eds. by Guillermo A. Calvo and e al., Oxford: Blackwell, Singer H.W., and P. Gray (1988), Trade Policy and Growh of Developing Counries: Some New Daa, World Developmen, 16, Taylor, L. (1991), Economic Openness: Problems o he Cenury s End, in Economic Liberalizaion: No Panacea, ed. by Tariq Banuri, Oxford and New York: Oxford Universiy Press, Clarendon Press,