The effects of external shocks on the business cycle in China: A structural change perspective

Abstract

We study the effects of external shocks on the business cycle in China and its sectors (agriculture, industry, and services) in terms of real GDP growth using several small‐dimensional VAR models with Cholesky identification for the period 1996–2014. We show that China—in particular its industrial sector—is susceptible to shocks, which can be related to a trade channel, a financial channel, and a confidence channel of business cycle transmission from major trading partner countries to the Chinese economy. We build on the previous literature by explicitly focusing on the response of the Chinese economy at the sectoral level and investigating the presence of confidence channels by analyzing the reaction in Chinese business and consumer confidence. If interpreted from the perspective of ongoing structural change and rebalancing in China, our findings can be interpreted as the result of a still very dominant industrial sector, and a previously export‐ and investment‐driven growth model. Tertiarization in China could be one way of increasing the economy's future resilience to external shocks. However, the future structure of both the industrial and service sectors may be very decisive.

Modelling sectoral sensitivity to macroeconomic shocks: Evidence from Nigeria

“…In a recent study, M. Murach and H. Wagner (2021) also used the VAR model to evaluate the extent to which external shocks affected the business cycle in the Chinese agricultural, industrial and services sectors between 1996 and 2014. The findings revealed the fact that, as the most dominant economic sector in China, the Chinese industrial sector sharply responded to the shocks arising from the financial, trade and confidence channels.…”

“…However, the short-and long-term estimates of the VAR and VEC models, as well as the causality tests, are not presented given the fact that the study is primarily focused on the investigation of sectoral responses to macroeconomic shocks. The Variance Decomposition (VD) and Impulse Response Function (IRF) are usually the focus of empirical discussions in a study of this nature (Ewing et al, 2003;Bäurle & Steiner, 2015;Sennoga & Matovu, 2016;Murach & Wagner, 2021).…”

External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach

“…Hence, the study concludes that the trade channel is the most important channel through which external shocks permeate to the East Asian countries. In addition, Murach and Wagner (2021) use factor-augmented VAR to estimate the effect of external shocks in driving the business cycle in China. The study reveals that the confidence channel works through trade and financial channels to generate the business cycle in the economy.…”

China’s “Political-Economy Trilemma”: (How) Can it be Solved?

“…On the one hand, the regime was aware that a rapid economic catchingup process (via economic growth) could only or most likely be achieved by softening the goal of a planned economy and political centralization, but it did not want to overdo it by introducing individual rights and market economy processes (see Naughton, 2017;Wagner, 2017). This is also because-particularly in the later phase of the Deng era-the strong integration of the Chinese economy into the world economy, with a high export share and a strong fixation on industrial production, created a strong vulnerability to external shocks 11 and the infiltration by other non-socialist ("Western") values threatening the ideological basis of the Communist Party of China (CPC) leadership (see Murach & Wagner, 2021).…”