The Effects of External Shocks on the Business Cycle in China: A Structural Change Perspective

36 Pages Posted: 7 Mar 2016 Last revised: 22 Jun 2016

See all articles by Michael Murach

Michael Murach

University of Hagen (FernUniversitaet in Hagen)

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen)

Date Written: March 3, 2016

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. 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.

Keywords: International transmission channels, Transmission of shocks, Structural vector autoregression, Structural change

JEL Classification: F43, F44, C32

Suggested Citation

Murach, Michael and Wagner, Helmut, The Effects of External Shocks on the Business Cycle in China: A Structural Change Perspective (March 3, 2016). Available at SSRN: https://ssrn.com/abstract=2741579 or http://dx.doi.org/10.2139/ssrn.2741579

Michael Murach (Contact Author)

University of Hagen (FernUniversitaet in Hagen) ( email )

Universitätsstrasse 41
Hagen, 58084
Germany

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen) ( email )

Universitätsstrasse 41
Feithstrathe 140
D-58084 Hagen
Germany
011-49-2331-987-2640 (Phone)
011-49-2331-987-391 (Fax)

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