TOWARDS DETERMINING CHINA’S ECONOMIC GROWTH PATH: A BALANCE-OF-PAYMENTS-CONSTRAINED GROWTH FRAMEWORK

Back to Page Authors: Yohanna Panshak

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Keywords: balance of payments constraint, relative prices, intermediate imports, growth

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Abstract: This paper examines the role of internal and external imbalances and relative prices in the economic growth process by the use of the balance of payment constrained growth (BOPCG) model recently developed by Soukiazis, Cerqueira & Antunes (2014)(SCA) for China from 1987 to 2017. The model has only been tested for three European countries (Portugal, Italy and Greece). The study first, verifies whether the BOPCG model is suitable for explaining the economic growth path for China. Second, it adopts the extended SCA-BOPCG model to incorporate the effects of exports and the domestic investment contents of import in the course of economic growth. Three Stage Least Squares (3STLS) was used to obtain the required elasticities for the estimation of domestic income growth. The study affirms the robustness and validity of the variants of the SCA model in determining the economic growth path for China. A sustainable solution should be focused on reducing the import content of demand and restraining the future of debts, especially in the overcapacity sector.

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