The PRC's long-run growth through the lens of the export-led growth model

Jesus Felipe () and Matteo Lanzafame

Journal of Comparative Economics, 2020, vol. 48, issue 1, 163-181

Abstract: We explain China's remarkable growth performance over the last three decades through an export-led growth (ELG) model, where countries need to export to pay for their imports. We show that China's actual long-run growth rate is well approximated by its balance-of-payments equilibrium (BOPE) growth rate, defined as the long-run growth rate consistent with current account equilibrium. This growth rate is given by the ratio of the growth rate of exports to the income elasticity of imports. We estimate the latter using the Kalman filter, which allows us to obtain a time-varying estimate of China's BOPE growth rate. We find that the average value of China's BOPE growth rate during 1981–2016 was about 11 percent but fluctuated significantly over time and declined notably after 2007. It is estimated to be 5.9 percent in 2015. We then discuss the determinants of China's BOPE growth rate and of the income elasticity of imports, with the help of the Bayesian Model Averaging technique. The analysis highlights the role of the composition of aggregate demand as the main driving force, both for its direct effects on the income elasticity of imports, and for the indirect effects on export growth via capital accumulation, in particular fixed asset investment. Our analysis has important implications to understand China's transition to a “New Normal” of a lower growth rate and the effects of the external and internal rebalancing strategy pursued from the early 2000s.

Keywords: Balance-of-payments equilibrium growth rate; Bayesian Model Averaging; China; Export-led growth; Kalman filter (search for similar items in EconPapers)
JEL-codes: E24 E32 O14 O47 O53 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The PRC’s Long-Run Growth through the Lens of the Export-Led Growth Model (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:48:y:2020:i:1:p:163-181

DOI: 10.1016/j.jce.2019.08.004

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