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China as an economic powerhouse: Implications on its neighbors

By Tilak Abeysinghe and Ding Lu


The rise of China as an economic powerhouse has caused concerns in its neighbors. Prevailing in the region is the fear that China is becoming a gigantic ‘‘regional factory’ ’ that will ‘‘hollow out’’ neighboring economies ’ industries. In this paper, we emphasize the economic benefits that a rising Chinese economy can bring into the region. A discussion on the country’s growth strategy suggests that China has recently started shifting from an export-oriented economy to a more domesticdemand-driven one. Such a shift, in the backdrop of China’s entry into the World Trade Organization, is opening up the country’s huge domestic market for imports, thus providing great opportunities for the regional economies. A custom-made structural VAR analysis based on tradelinks in the region provides empirical evidence that China had quickly emerged as a growth engine in the region even before China joined the WTO and made a full transformation of its growth model

Topics: Export-driven economy, Internal-demand-driven economy, Structural VAR analysis, Trade links
Year: 2003
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