Download chinese-emcca trade and economic growth of emcca

CHINESE-EMCCA TRADE AND ECONOMIC
GROWTH OF EMCCA
Seydi Ababacar DIENG
LAREM - UCAD
Introduction and litterature review
• Since the end of the 1970s, the progressive
implementation of reforms and openness has allowed
China to climb to second place in the ranking of world
economic powers.
• Currently, China remains the largest exporter and one
of the largest investors in the world. It has become a
major player in the context of international trade and
finance.
• To meet its huge demand for raw materials and semi finished products, China intensifies increasingly the
trade with the rest of the world, especially Africa.
• China has become the largest trading partner of Africa
in the early twenty-first century, followed by France
and the United States (Paulais, 2013).
Introduction
• For the latter, trade between Africa and China was $
166.3 billion in 2011; which is a historical prowess.
• Also, part of ever increasing oil imports come from
Africa (Andrésy et al., 2010), particularly the countries
of the Economic and Monetary Community of Central
Africa ((EMCCA).
• Traditional theories of international trade - Smith
(1776), Ricardo (1817) view trade as a powerful driver
of economic growth.
• Free trade appears as a must for countries that wish to
sustainably improve their economic situation.
• In this perspective, all forms of barriers to international
trade in goods and services is an inefficient strategy.
Introduction
• In endogenous growth models, international trade
positively affects the growth of the participating
countries, the only condition for international
dissemination of knowledge and technology (Grossman
and Helpman, 1995).
• When this condition is not satisfied, trade openness
fosters innovation and growth in some countries over
others. The theory of endogenous growth has enriched
the study of the relationship between international
trade and economic growth by introducing in the
analysis the role of technical progress and intermediate
goods - and their impact on the productive capacity of
the country. For Edwards (1993), this theory
demonstrates the existence of a long-term balance
between trade openness and economic growth.
Introduction
• Furthermore, it is compulsory to remember that
most multilateral organizations such as the WTO,
World Bank, IMF and OECD are convinced that
international trade generates predictable and
positive effects on economic growth, hence their
strong plea for a free trade globally.
• Countries lagging behind have a vested interest in
integrating into the global economy to grow
(Fischer, 2000).
Introduction
• Several studies and empirical analyses have been
devoted to the relationship between international
trade and economic growth.
• This link is one of the most studied ones in the
literature on economic growth and development topics.
• The majority of empirical studies conducted conclude
that international trade greatly facilitates and
stimulates growth by allowing participating countries to
achieve some gains, particularly in terms of capital
accumulation, technological progress and industrial
development.
• Thus, the openness to trade and FDI policies are most
appropriate to enjoy sustained economic growth (IMF,
2001).
Introduction
• In light of these theoretical and factual circumstances, a
legitimate question arises: what is the impact of
Chinese-EMCCA trade on economic growth of this
area?
• This article stipulated that the primary objective was
analyzing the effects of trade between China and the
countries of the EMCCA economic growth.
• Trade is measured from several macroeconomic
variables of open trade, exports and imports - their
sum - the total trade volume.
• However, we are also concerned about the effects of
foreign direct investment (FDI) from China on EMCCA
economic growth.
• This attention to FDI is justified by the fact that they are
often closely related to international trade.
Introduction
• Our main hypothesis is that Chinese-EMCCA trade
boost economic growth in the EMCCA countries and
thus positively affect the growth rate of GDP per
head.
• However, the model chosen incorporates other
control variables - the enrollment rate in secondary
education in the working age population (human
capital proxy), the investment rate (proxy of
physical capital) and the growth rate of the
population.
Introduction
• To achieve our goal, the dynamic panel data model
with a specification proposed by Abah, Atozou and
Dieng (2014), derived from the Solow (1956)
increased by Mankiw, Romer and Weil (1992)
revised and expanded FDI, is used as allows to
highlight the effects of these variables on economic
growth of the area.
• In this paper, we use of a method - the GMM
system - which is not employed enough to assess
the impact of trade openness on economic growth.
Introduction
• Panel data used in this paper concern the 6 EMCCA
countries - Cameroon, Congo, Gabon, Equatorial
Guinea, Central African Republic and Chad - and
cover the period 2000-2013.
• The data were retrieved from World Bank sites
(World Development Indicators and Worldwide
Governance Indicators) for variables GDP and
investment, UNCTAD trade-related variables of
UNESCO for Education and Chinese year book for
Chinese FDI.
Model specification
• The importance of international trade for economic growth of
countries was demonstrated by most theorists, especially the
Liberals. However, it remains, empirically, discussions on the
relevance of the measurement and the choice of techniques
used to assess the relationship between international trade
and economic growth.
• Indeed, several types of models were used to determine the
impact of international trade on production, often with
different results
• In this paper, we adopt the dynamic panel data model with a
specification as said above. This specification seems more
appropriate, in particular, because of the specific technical
advantages with GMM models and the short time horizon
(2000-2013) chosen to conduct this empirical study.
• This specification includes two very closely related models.
• The first, proposed by Busse and Koniger (2012) and
Ulasan (2012), is written :
• 𝑙𝑛𝑦𝑖𝑡 = 𝜑0 + 1 + 𝜑1 𝑙𝑛𝑦𝑖𝑡−1 + 𝜑2 𝑙𝑛𝑆𝐾,𝑖𝑡 +
𝜑3 𝑙𝑛𝑆𝐻,𝑖𝑡 + 𝜑4 ln 𝑛𝑖𝑡 + 𝑔 + 𝛿 + 𝜋𝑗 𝑋𝑗,𝑖𝑡 +
𝜔𝑗 𝑃𝑗,𝑖𝑡 + 𝜏𝑡 + 𝜇𝑡 + 𝛾𝑖
• The second model of this specification is the
following :
• 𝑙𝑛𝑦𝑖𝑡 = 𝜑0 + 1 + 𝜑1 𝑙𝑛𝑦𝑖𝑡−1 + 𝜑2 𝑙𝑛𝑆𝐾,𝑖𝑡 +
𝜑3 𝑙𝑛𝑆𝐻,𝑖𝑡 + 𝜑4 ln 𝑛𝑖𝑡 + 𝑔 + 𝛿 + 𝜋𝑗 𝑋𝑗,𝑖𝑡 +
𝜔𝑗 𝑃𝑗,𝑖𝑡 + ɸ𝑗 𝐼𝑗,𝑖𝑡 + 𝜏𝑡 + 𝜇𝑡 + 𝛾𝑖
Model specification
• The dependent variable is the growth rate of GDP per capita (ΔGDPpc) - the
difference in logarithm of GDP per head in two consecutive years. The
explanatory variable is the initial level of GDP per head (GDPpc (t -1)). The
use of the latter makes it possible to measure the beta - convergence.
• The other explanatory variables are control variables. For the following
variables:
• -The savings rate (InvestPart) is approached by the hand means investments
in real GDP per capita at current prices (GFCF / GDP).
• - The GrowthPop variable is the growth rate of the labor force.
• - Investment in human capital (education) is approached by the fraction of
the population over 15 years educated in secondary education.
• - Trade openness (Aperture = X) denotes the ratio of total trade (exports
plus imports) and current GDP. We add the variable total trade (Vol trade)
to account for the positive result of access to more technology - due to
increased trade - economic growth. We also use the volume of imports
(Import) and the Export (Export) to assess their effects on the growth of the
EMCCA countries.
•
Model specification
• This set of five variables represent the breakup of the Solow residual (1956) - such
technical progress. The last four following variables are institutional variables. Their
definitions have been proposed by the World Bank (Worldwide Governance
Indicators.
• Voice and Accountability is the variable that expresses the perceptions of the
citizens of a country of their ability to participate in selecting their government, as
well as the freedoms of expression, association and the media.
• - Political stability and absence of violence reflects the perceptions of the likelihood
of destabilization or overthrow the government by unconstitutional or violent
means, including political violence and terrorism.
• - Government effectiveness measures perceptions of the quality of public services,
that of the civil service and the degree of its independence from political pressures,
the quality of the formulation and implementation of policies, and credibility the
commitment of the Government in relation to them.
• - The rule of law expresses perceptions of trust and respect of the company's rules
by agents, and notably the quality of contract enforcement, property rights, the
police and the courts, as well as the likelihood of crime and violence.
• The introduction of institutional variables is justified theoretically and empirically.
Indeed, most of the work on the determinants of economic growth in Africa often
uses no strictly economic variables including the socio-political aspects and
especially institutional.
Results and discussion
Table. Summary of results of the estimates and econometric tests
Significant at 1% (***), at 5% (**) and at 10% (*)
Dlnpibpc
Estimation 1
Estimation 2
Estimation 3
Estimation 4
Estimation 5
L.lngdppc
-0,63413***
-0,63303***
-0,58796***
-0,63989***
-0,63544***
lnInvestPart
-0,13348***
-0,12556***
-0,12941***
-0,11724***
-0,09611***
lnEducation
0,18659
0,18757
0,18169*
0,12261
0,27279***
Growthpop
-0,04197
-0,12378
-0,08304
-0,11358
-0,06225
Respons
0,11081***
0,13907***
0,19408***
0,14817***
0,05598
StatPol
0,05611***
0,05443***
0,02874
0,04294**
0,02811*
Effgouvern
-0,02836
-0,04445
-0,06242
-0,01928
-0,00989
State law
0,26114*
0,24195
0,14591
0,22037
0,07883
lnOpennness
0,03857***
lnExport
-0,02331***
0,03751***
lnImport
0,03263***
lnVolTrad
0,04696***
lnFDISPart
1,5726**
Residue autocorrelation tests
0,063
0,048
0,088
0,063
0,053
0,296
0,268
0,234
0,263
0,358
P_val: 0,289
P_val : 0,224
AR(1) test, p-value
AR(2) test, p-value
Validity testing instruments
Test de Sargan
P_val: 0,309
P_val : 0,402
P_val: 0,160
Results and discussion
• Regarding estimate 1, the results indicate that the variables voice and
accountability (Response), political stability (StatPol) and trade openness
(Opening) have a positive and very significant impact (at the 1% level) on
the growth rate head. Thus, an increase of one percent of the political
stability and accountability respectively causes an additional per capita
growth of 0.1 and 0.06 points while an increase of 1% of trade openness
rate generates only 0.04 points of growth per head more.
• The rule of law (State Law) has a positive effect on per capita growth.
Improving the rule of law of one percent leads to an increase of 0.3%
economic growth. Institutional variables therefore play a significant and
positive role in the economy.
• These results confirm the theoretical predictions stating the positive
consequences of political stability, accountability, rule of law and trade
openness on economic growth.
• They thus suggest that it is advantageous for the EMCCA countries to
substantially increase their trade with their Chinese partner and improve
the rule of law, political stability and accountability.
• This result is consistent with that obtained by Akua Akuffo et al. (2012).
These have shown that trade openness has a positive relationship with
economic growth for 38 African countries over the period 1980-2008.
Results and discussion
• The impact of the share of Chinese FDI in GDP growth of
EMCCA countries is very significant (Estimated 5). This result
corroborates those of Nabine (2009), Atoyebi et al. (2012).
• Indeed, the estimate indicates that a 1% increase in the share
of FDI in GDP generates an additional 1.57 percentage point
of economic growth per capita for the EMCCA countries.
• The effect of the proportion of Chinese FDI on economic
growth of this area is considerably high, especially compared
to the effects of other significant predictors.
• EMCCA countries have interest to intensify economic
relations with China, lay more emphasis on cooperation
between their companies and those of China to substantially
and sustainably increase the share of Chinese FDI in GDP and
subsequent economic growth.
Conclusion
• The main results of the estimates of various macroeconomic
aggregates indicate that trade openness to trade, exports, imports
with China and the volume of trade has a positive and very highly
significant impact on the growth rate per head.
• Ultimately, we note that the overall results confirm the theoretical
predictions stating the positive impact of trade openness on
economic growth. These results derive two main implications for
economic policy.
• First, EMCCA countries have an interest to substantially increase
their trade with China. They should, in consultation with China,
establish a framework for exchange so as to have a better
distribution of gains from trade. T
• he establishment of partnerships between Chinese and African
enterprises should facilitate the achievement of this objective.
• Second, these countries must also create and maintain a
sustainable stable and institutional macroeconomic environment
to attract more FDI, especially Chinese, given their positive and
highly significant effect on economic growth.