Regime switches in the Sino-American co-dependency: Growth and structural change in China

Luigi Bonatti and Andrea Fracasso

Structural Change and Economic Dynamics, 2013, vol. 25, issue C, 1-32

Abstract: We present a two-country two-stage growth model capturing several salient features of the special US–China relationship and reproducing the process of export-led growth and structural change in China. In phase 1, China accumulates and sterilizes US assets (and finances US consumption) as it pegs the renminbi to the dollar at an undervalued level, thus stimulating the domestic production of tradables, compressing domestic consumption and facilitating the transition of surplus labor into the modern sectors of the economy. In phase 2, we analyze possible future scenarios. In Scenario A, the Chinese fiscal policy is effective in partially substituting exports by shifting the domestic demand toward tradables. Scenario B emphasizes the risks for China of abandoning too early the pegging. Scenario C shows that the Chinese continuation of an export-led growth strategy is economically feasible.

Keywords: Sino-American co-dependency; Growth models; Structural change; Global imbalances (search for similar items in EconPapers)
JEL-codes: F33 F41 F43 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0954349X13000052
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:25:y:2013:i:c:p:1-32

DOI: 10.1016/j.strueco.2013.01.004

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().