An analysis of the impact of China’s macroeconomic performance on its trade partners: Evidence based on the GVAR model

Abstract

Economic strategies and planning are critical to a country’s growth and development. China, like many other countries, is seeking the most cost-effective trade deals. Using the Global Vector Auto Regression (GVAR) model, this study examined the impact of a shock to China’s macroeconomic factors on trading economies. The major findings reveal that there is no co-movement between the shock in Chinese gross domestic product (GDP) and German macroeconomic indicators; however, the shock has a positive and substantial influence on Japan’s GDP and Unites States (US)’ exchange rate. It is also worth noting that a shock to Chinese trade volume is more susceptible and more disturbing than a shock to US trade volume since it reduces trade volume and causes the Ren Min Bi (RMB) to devalue permanently. Furthermore, the analysis shows that Chinese stock prices have a major influence on German economy since China’s GDP, trade volume, and currency appreciate over time when its stock price rises. Finally, the exchange rate shock is beneficial to Germany as it boosts GDP and trade volume but has a negative influence on US stock prices. The current study is, therefore, expected to be a suitable beginning point for the governments and policymakers of trading partners to design an effective trade policy to minimize the impact on major economic variables.

Agri‐food trade channel and the ASEAN macroeconomic impacts from output and price shocks

“…For example, several studies find a moderate or weak role for trade interdependence in propagating external shocks (Baig & Goldfajn, 1999; Berkmen et al., 2012; Blanchard et al., 2010; Canova, 1991; Canova & Dellas, 1993; Harrigan, 2000; Masson, 1998). Alternatively, other studies (Alam et al., 2023; Dreger & Zhang, 2014; Dungey & Martin, 1998; Feldkircher & Huber, 2016; Gauvin & Rebillard, 2018; Haidar, 2012; Hájek & Horváth, 2016; Inoue et al., 2015; Ito & Hashimoto, 2005; Raghavan & Devadason, 2020; Raghavan et al., 2021; Zahedi et al., 2022) identify the influential role of trade (both bilateral and competition via a third market) in explaining the propagation of macroeconomic instabilities in the international markets.…”

“…Output (real) shocks transmitted through the trade channel can impact the macroeconomic stability of the receiving country. If a country's trading partner experiences an economic downturn (or declines in consumption or investment), their demand for imports may decrease, leading to a decline in exports from the affected country (demand side; Alam et al., 2023; Feldkircher & Huber, 2016; Inoue et al., 2015; Sznajderska, 2019; Zahedi et al., 2022). This reduction in trade flows can directly reduce growth of the domestic economy, affecting industries, employment, and income.…”