The Economic Link between China and North America

Abstract

China's prosperity may upset others. Will a rising China reduce the growth rate of other countries? We address the question with statistics by comparing the securities market indices of China with those of the United States and Canada. We ask whether the financial markets-East and West-are positively correlated or negatively correlated. We find a moderate positive correlation. This correlation decreases during extreme market circumstances, particularly during market crashes. The correlation becomes closer-we think better for cooperation-during times of improved international cooperation. The correlation diminishes-we think worse for cooperation-when abrupt negative contingencies arise in the global market. The data show that the correlation increased after China joined the World Trade Organization and dramatically decreased after the financial crisis in 2008. Moreover, our lead and lag analysis shows that North America's markets forecast later developments in China's market. In general, there is a trend in the positive correlation between the two economies.