The People's Republic of China as an Engine of Growth for Developing Asia?: Evidence from Vector Autoregression Models

Abstract

Developing Asia has traditionally relied on exports to the United States (US) and other industrialized countries for demand and growth. As a result, the collapse of exports to the US and other industrialized countries during the global financial and economic crisis has sharply curtailed gross domestic product (GDP) growth across the region. The emergence of the People’s Republic of China (PRC) as a globally influential economic force is fueling hopes that it can supplement the US as an additional source of demand and growth. The central objective of this paper is to use vector autoregression (VAR) models to empirically investigate whether exports to the PRC have a significant and positive effect on the GDP of nine developing Asian countries. The study’s results from a three-variable VAR model indicate that PRC’s imports have a significant positive effect on the GDP of regional countries. However, the study’s results from a four-variable VAR model indicate that the PRC’s apparently positive impact reflects the US’ demand for Asian goods, rather than independent demand from the PRC. Therefore, overall, the study’s evidence suggests that the PRC is not yet an engine of growth for the rest of the region.