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The authors are grateful to Tam Bayoumi, Nigel Chalk, Stephan Danninger, Ken Kang, Prakash Loungani, Martin Muhleisen, and Hui Tong for helpful comments and to Zhang Shi Ting and Adil Mohommad for assistance with the data. We are solely responsible for the contents of the paper.
The high market share in “high-tech” goods overstates, however, China’s technological input in these products. Some goods (such as computers) are classified in the trade data as high-tech, although their production is largely standardized and is based in large part on imported inputs. In a much-quoted example in popular discussion, the typical iPod, for example, leaves the factory gate at a price of $150, of which all but $5 is based on imported inputs and technology.
The share, while rising rapidly, is still smaller than the share of the United States in the external trade of other Western Hemisphere countries (around 25 percent during 2000-2009) and also smaller than the share of Japan in the rest of Asia’s trade (14 percent). The share of Japan is, however, just half of its level 2 decades ago.
That is, the contribution of a country’s real net exports (NX) to its real GDP (Y) growth in year t can be calculated as ΔNXt/Yt-1, and the contribution of its real net exports to China (NXchina) can be calculated as ΔNXt China/Yt-1.
To estimate how structural innovations affect the dependent variables, we use a recursive system in which growth in the rest of the world is affected by structural innovations in growth in both the rest of the world and China. But growth in China is affected only by its own structural innovations. This recursive system is a triangular decomposition, also called a Cholesky decomposition. The resulting test statistics depend on the ordering of the variables in the VAR. The impulse responses of growth in the rest of the world to growth in China are statistically significant for the last two decades.
This approach to estimating the importance of the trade channel follows Bayoumi and Swiston (2007).
Data for GDP and the real effective exchange rate are from the World Bank’s World Development Indicators. Data for the oil price, the terms of trade, and inflation are from the IMF’s World Economic Outlook database. Growth in trading partners is estimated using data from the IMF’s Direction of Trade Statistics, as described in Arora and Vamvakidis (2005).
China’s growth enters on a weighted basis as part of trading partners’ growth and on an unweighted basis as a separate variable.
See, for example, Barro and Sala-ì-Martin (1995).
Weighted distance of each capital from Beijing.
The results are robust if we use ten-year averages instead.
This is an unbalanced panel, but the results are robust if the sample is limited to countries with observations for the whole period. China is excluded from the sample as its growth rate is one of the independent variables.
We include exports to both China and Hong Kong SAR to address the possibility that some exports to China go through Hong Kong SAR.