nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒04‒15
one paper chosen by
Iulia Igescu
Global Insight, GmbH

  1. American and European Financial Shocks: Implications for Chinese Economic Performance By Rod Tyers; Iain Bain

  1. By: Rod Tyers; Iain Bain
    Abstract: With exports almost half of its GDP and most of these directed to Europe and North America, negative financial shocks in those regions might be expected to retard China's growth. Yet mitigating factors include the temporary flight of North American and European savings into Chinese investment and some associated real exchange rate realignments. These issues are explored using a dynamic model of the global economy. A rise in American and European financial intermediation costs is shown to retard neither China's GDP nor its import growth in the short run. Should the Chinese government act to prevent the effects of the investment surge, through tighter inward capital controls or increased reserve accumulation, the associated losses would be compensated by a trade advantage since its real exchange rate would appreciate less against North America than those of other trading partners. The results therefore suggest that, so long as the financial shocks are restricted to North America and Western Europe, China's growth and the imports on which its trading partners rely are unlikely to be significantly hindered.
    JEL: C68 E17 F21 F17 F43 F47 O5
    Date: 2008–04
    URL: http://d.repec.org/n?u=RePEc:acb:cbeeco:2008-491&r=fdg

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