The Stabilizing Effect of Industrial Structure Upgrade on Economic Fluctuations in China

Fuqian Fang and Xinyu Zhan

Economic and Political Studies, 2015, vol. 3, issue 1, 18-41

Abstract: Empirical study using a time-varying parameter model indicates that since the reform and opening up of China, its industrial structure upgrade has had an increasingly significant stabilizing effect on the amplitude of economic fluctuations. A further analysis using a TGARCH model reveals that the three major industrial sectors have asymmetrical effects on the size of macroeconomic fluctuation: the primary industry (extraction) has little effect; the secondary industry (manufacturing) has a leverage effect mainly caused by heavy industry; the tertiary industry (services) has a clear stabilizing effect, with the effect of transportation, logistics, the postal industry, housing-catering services, and other service industries being most significant, and the effect of wholesale, retail, the finance industry and real estate being less significant due to their own large fluctuations. The policy implications of the findings are that to maintain stable growth in the economy, China should optimize the relations of the three major industrial sectors, and further push for the upgrading of the industrial structure, especially the development of the tertiary industry.

Date: 2015
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DOI: 10.1080/20954816.2015.11673836

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