Sense and Nonsense on Asia's Export Dependency and The Decoupling Thesis

Dong He, Lillian Cheung () and Jian Chang ()
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Lillian Cheung: Research Department, Hong Kong Monetary Authority
Jian Chang: Research Department, Hong Kong Monetary Authority

No 703, Working Papers from Hong Kong Monetary Authority

Abstract: It has often been argued that East Asia needs to switch from an export-led growth model to a domestic-demand led growth model so as to reduce its vulnerability to a sharp slowdown in the US economy. This paper argues that, indeed, in the foreseeable future, East Asia's business cycle is unlikely to decouple with that of the US, but the switch-of-growth-model argument is problematic because it mixes up the effects of external trade on an economy's cyclical developments and its long-term growth potential. The paper argues that the desirable way to reduce external vulnerabilities is to diversify export markets and to further strengthen domestic institutions and policies in order to reduce the impact of temporary shocks, not by reducing the degree of openness or the share of exports in GDP. The paper further argues that the rising size of domestic demand in Mainland China will overtime help the rest of the region to diversify its export markets away from the major industrialized countries.

Keywords: Export-led growth; domestic demand-led growth; decoupling (search for similar items in EconPapers)
JEL-codes: F13 F43 O11 O24 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-04
New Economics Papers: this item is included in nep-cna, nep-int and nep-sea
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0703

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