The impacts of China on economic growth: Evidence for Brazil, Chile, and Peru

ABSTRACT

This study empirically analyzes the direct impacts derived from the swift increase in exports to China (referred to as “the impact of China”) on the economic growth of three selected South American countries, Brazil, Chile, and Peru, during the commodity boom between 2001 and 2008. The results stemming from the balance-of-payments-constrained growth model suggest that the magnitude of China’s impact was less than 1 percent, although it ranged from the largest to the second largest impact among all trading partners for the three countries. The estimated balance-of-payments growth rate of domestic income is lower than the real growth rate of domestic income. This is because the growth rates of the export volumes were not sufficient even during the commodity boom, on account of the continued increasing trends of income elasticity of demand for imports. Furthermore, the income elasticities of demand for imports from China were especially high. Therefore, the three countries will continue to face further increase in the income elasticity of demand for imports as well as a stagnant growth rate of export volumes. Thus, the balance-of-payments position will continue to be the main growth constraint for these countries.

KEYWORDS:

• Balance-of-payments-constrained growth model
• commodity boom
• counterfactual analysis
• exports to China
• South American countries

JEL CLASSIFICATIONS:

• F41
• F43
• O54

Notes

¹We assume that the export volume changes of the previous ten years are equal to the parameter of the estimated time trend of the previous ten years (Figures 4 to 6, presented later in the study).

²Cimoli and Correa (2005) also incorporated technological gaps into the BPC growth model. In this model, the dynamic version of the foreign trade multiplier is shown as the ratio of technological gaps to the income elasticity of imports. Therefore, our derived specification is a specific case that assumes that the technological gaps between the home and trading partners are constant during the period under analysis.

³The data on trade values are sourced from COMTRADE (http://comtrade.un.org/data/). The data on GDP deflator and external trade deflator are sourced from CEPALSTAT (http://estadisticas.cepal.org/cepalstat/web_cepalstat/estadisticasIndicadores.asp?idioma=e).

⁴The data on the bilateral real exchange rates of these countries with the United States are sourced from the Central Bank of Chile (www.bcentral.cl/estadisticas-economicas/series-indicadores/index_p.htm) and the Central Bank of Peru (https://estadisticas.bcrp.gob.pe/estadisticas/series/mensuales/tipo-de-cambio-real). The data on real effective exchange rates are sourced from CEPALSTAT (http://estadisticas.cepal.org/cepalstat/web_cepalstat/estadisticasIndicadores.asp?idioma=e).

⁵Although there are no special reasons for us to assume the length of the period for each time series analysis to be 13, we follow Pacheco-López and Thirlwall (2006), who determined that the minimum length of the period under analysis is 14.

⁶In our case, we assume multilateral trading partners. Thus, the standard errors of the weighted sum of the income elasticities of demand for imports are calculated by weighting the standard error of each trading partner according to that trading partner’s relative share in the total imports ($$w_m^s$$).

⁷Among the exports from Brazil to Others, with the exception of China, the shares of exports to Canada, Japan, Republic of Korea, and other emerging economies such as India and Russia, were relatively large in 2001 to 2008.

Additional information

Notes on contributors

Yoshimichi Murakami

Yoshimichi Murakami ([email protected]) is an Assistant Professor at RIEB (Research Institute for Economics and Business Administration) of Kobe University.

René A. Hernández

René A. Hernández is a Lecturer of The University of Chile.