The Role of External Variables in the Chinese Economy
This paper presents the structure of a macroeconometric model proposed to study the effects of the openness policy on the Chinese economic success. Through this model, this paper attempts to understand the links existing between the Chinese key- macro-variables and above all the role of external variables on the Chinese economy. Among these external variables, special care is accorded to exchange rate and foreign direct investment (FDI). Even if this modelling does not want to supply a global view of the Chinese economy, it attempts to give the maximum of important relationships for these goals. Because it is a macroeconomic model, it excludes regional and sector-related analysis. Because it emphasises the external part of the economy, this model neglects all the internal relationships that are unconnected with the rest of the world. Error correction modelling is the general technique used for estimating this model. This technique allows the modeller to give the long run specification for the different equations while defining the short-run dynamics. The model equations are generally estimated econometrically on the period 1984-1995 ; a period particularly rich in transformations of the Chinese economic system and in structural breaks. The external part of the model defines the foreign trade relationships (exports and imports) and the determinants of FDI. The internal part is based on the supply-side of the economy and is centred on a production function for industrial output. Some demand-side equations (households' consumption and investment) are also introduced as well as equations for money demand and d omestic prices.
macroeconometric modelling; transition economies; China
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