The Impact of China’s Slowdown on the Asia Pacific Region : An Application of the GVAR Model

An export-oriented development strategy fostered the Asia Paciﬁc region’s economic success, making it the fastest growing region in the world. In recent years, despite waning demand from the crisis-hit Western economies, the accelerating demand fro...

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Bibliographic Details
Main Authors:	Inoue, Tomoo, Kaya, Demet, Ohshige, Hitoshi
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	FORECASTS GROWTH RATES REAL ECONOMIC ACTIVITY MONETARY POLICY TRADE SHARE OIL PRICE ECONOMIC GROWTH WORLD TRADE ORGANIZATION PRICE INCREASES SHORT-TERM RATE LAGS T-VALUE TRADE SHARES SHORT-TERM INTEREST RATES DIRECTION OF TRADE STRUCTURAL CHANGE INTEREST DEPRECIATION DUMMY VARIABLES EXPECTATIONS INTEREST RATE REAL GDP EXCHANGE EQUITY MARKET DEVELOPING COUNTRIES EXPORTS ELASTICITY SHARE OF WORLD TRADE RECESSION POLITICAL ECONOMY EXPORTERS PRICE INDICES INTERNATIONAL BUSINESS TRANSMISSION MECHANISM DISTRIBUTION VARIABLES INTERNATIONAL ECONOMIES SLOWDOWN EQUITY PRICES PRICE GOVERNMENT BOND DUMMY VARIABLE SUPPLY CONDITIONS INFLATION ECONOMIC SHOCK VARIANCE-COVARIANCE MATRIX IMBALANCE PUBLIC POLICY OIL PRICES ECONOMIC SLOWDOWN GLOBAL ECONOMY CURRENCY TRADE SHOCKS ERROR CORRECTION MODEL COVARIANCE MATRIX REGIME CHANGES TRADE INTEGRATION ADVANCED ECONOMIES RESERVE BANK EXOGENOUS VARIABLES MONEY GOLD BASE YEAR ECONOMETRICS INTEREST RATES SUPPLY SHOCKS WTO OPEN ECONOMY BUSINESS CYCLE IMPORTS DIRECT INVESTMENT GROSS DOMESTIC PRODUCT REAL ESTATE COMMODITY PRICE MACROECONOMIC FORECASTING BANKING SECTOR IMPACT ON PRICES EQUITY FEDERAL RESERVE OIL MARKET EQUITY PRICE FEDERAL RESERVE BANK INTERNATIONAL TRADE LONG-TERM INTEREST RATE FINANCIAL CRISIS FUTURE VALUE FOREIGN DIRECT INVESTMENT INTERNATIONAL MONEY PRICE OF OIL CREDIT MACROECONOMICS WORLD ECONOMY DEVELOPMENT STRATEGY DEMAND LONG-TERM INTEREST RATES ECONOMY AGRICULTURE EQUATIONS ERROR TERM MEASUREMENT SHARES REAL EXCHANGE RATE RAPID EXPANSION FINANCIAL ANALYSIS DYNAMIC ANALYSIS ECONOMIC THEORY LOCAL CURRENCY MONETARY POLICIES ENDOGENOUS VARIABLES OUTPUT MACROECONOMIC VARIABLES BUSINESS CYCLES TRADE DATA WEIGHT ECONOMIC DEVELOPMENT TRADE ECONOMIC INTEGRATION ERROR CORRECTION MODELS GDP GOODS THEORY GROWTH RATE INVESTMENT RISK BOND SHARE SHORT-TERM INTEREST RATE CREDIT QUALITY AUTOREGRESSION INTERNATIONAL PRICES SUPPLY BANKING TRADE RELATIONS EXTERNAL SHOCKS COMMODITY MARKETS DEVELOPMENT FINANCE CONSUMER PRICE INDEX WORLD TRADE COMMODITY MARKET RAPID GROWTH COMMODITIES EXCHANGE RATE PRICE INDEX COMMODITY PRICES TRADING PARTNERS TRADING PARTNER OPEN ECONOMIES COMMODITY WEIGHTS WORLD MARKET PRICES ECONOMIES TRADE STATISTICS DEVELOPMENT POLICY FUTURE RESEARCH
Online Access:	http://documents.worldbank.org/curated/en/2015/10/25155241/impact-china’s-slowdown-asia-pacific-region-application-gvar-model http://hdl.handle.net/10986/22871

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Summary:	An export-oriented development strategy fostered the Asia Paciﬁc region’s economic success, making it the fastest growing region in the world. In recent years, despite waning demand from the crisis-hit Western economies, the accelerating demand from China boosted intraregional trade in Asia. Although China’s Asian trading partners beneﬁt from increasing exports to China, this stronger linkage with China has made them more vulnerable to the risk of a Chinese slowdown. This paper examines the impact of a negative Chinese gross domestic product (GDP) shock on Asian economies by employing the Global Vector Autoregressive (GVAR) model, using the dataset through the third quarter of 2014 for 33 countries. The analysis finds that a negative Chinese GDP shock impacts commodity exporters, such as Indonesia, to the greatest extent, reﬂecting both demand and terms of trade shocks. Export-dependent countries in the East Asian production cycle, such as Japan, Malaysia, Singapore and Thailand, are also severely aﬀected. The analysis also finds that a negative shock to China’s real GDP would not only have an adverse eﬀect on the price of crude oil, as some previous studies have also shown, but also on the prices of metals and agricultural products. The study also investigates the impact of a potential negative shock to the real GDP of the United States on Asian countries, and determines that although the U.S. economy has a larger inﬂuence on Asian economies than China’s economy, the Asian countries are more exposed to China than ever through increased economic ties.

The Impact of China’s Slowdown on the Asia Pacific Region : An Application of the GVAR Model

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