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What Happens to Japan if China Catches Cold? - A causal analysis of the Chinese growth and the Japanese growth

Pu Chen () and Chih-Ying Hsiao ()

Econometrics from EconWPA

Abstract: Many economic professionals like financial analysts, economic journalists and regulatory officers prevailingly regard the fast growth of the Chinese economy as the key factor that leads recently the Japanese economy to recover from the recession that started since beginning of the nineties. This judgement are mostly underpinned by statistical facts that the Chinese economy grew fast in the last two years; the Japanese export to China has experienced a dramatically increase during last two years, China has become now the biggest foreign trade partner of Japan and so on. However, this convincingly sounding arguments are not sufficient to conclude the statement that the Chinese growth leads Japan out of the recession. In fact the statement has essentially a causal character, which means both the interdependence and the directionality of the dependence. While the positive dependence/correlation between the Chinese economy and the Japanese economy is often explicitly documented by statistical facts, arguments about the directionality of the dependence are totally missing. In this paper we conduct an empirical study to investigate the directionality of the dependence in order to justify the statement empirically. Taking a probabilistic causal approach, we infer the causal dependence among the Japanese economy and the Chinese economy based on observed data. We find the evidence that the Chinese growth on average has been a positive cause of the Japanese since the later nineties and the temporary positive casual effect is even more pronounced.

Keywords: Inferred Causality; Recovery of the Japanese economy; China Japan relation (search for similar items in EconPapers)
JEL-codes: C1 F4 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sea and nep-tra
Date: 2005-10-29
Note: Type of Document - pdf; pages: 25
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