Download Study on Relationship Between Trade Development of Waigaoqiao

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Study on Relationship Between Trade Development of Waigaoqiao
Free Trade Zone and Economic Growth in Shanghai
SUN Hao
Department of Economics, Shanghai Customs College, P.R.China, 201204
[email protected]
Abstract: Waigaoqiao Free Trade Zone (WGQ FTZ) is taken as an empirical object to analyze the
relationship between trade development of FTZ and local economy growth. Firstly, Granger causality
test is carried out for qualitative analysis. The test results show that WGQ FTZ’s trade is the significant
cause of GDP development in Shanghai, and moreover, WGQ FTZ’s trade can continually boost local
GDP growth in 2 or 3 years. And then Stepwise regression is introduced to compare and quantitatively
analyze the different effects on local economy development by trade volume inside and outside of WGQ
FTZ, fixed assets investment and gross industry output value in Shanghai. The final regression model
indicates that WGQ FTZ’s trade volume plays much greater role in local economy development than the
trade volume outside of WGQ FTZ, and when WGQ FTZ’s trade volume is increased by 1 percentage
point, Shanghai’s GDP will be increased by about 0.223 percentage points.
Keywords: Free Trade Zone, GDP, Trade volume, Granger Causality Test, Stepwise Regression
1 Introduction
Free Trade Zone is the special economic area with the highest economic openness and political
privileges, it have played an important role in promoting trade increase and local economic development
since its establishment. To give an example, Shanghai Waigaoqiao Free Trade Zone (WGQ FTZ) is the
first built-up FTZ in China, and its foreign trade volume is only 1.046 billion U.S. dollars in 1996,
which is less than 1/20 of the total foreign trade volume in Shanghai City. Since the late 1990s, its
foreign trade has a very rapid growth rate. In 2009, WGQ FTZ successfully withstood the impact of
global financial crisis and international market depression, achieved up to 55.112 billion U.S. dollars in
foreign trade, which is about 1/5 of the total import and export volume in Shanghai, and nearly keeps
400% annual growth rate during the past 13 years.
FTZ is the special economic zone with Chinese characteristics, and quite different from some other
free trade zones in the world, therefore, some researches on the relationship between its trade
development and regional economic growth are limited to the domestic. Shi Yuhui(2006), Pan
Xiaohui(2006) analyzed the contribution of WGQ FTZ by comparing it with Pudong New Area and
Shanghai City from gross and incremental values of some main economic indicators. Shi
Yuhui(2006), Han Jing(2008) compared FTZ with some other local economic functional areas, and
found that FTZ has more prominent output efficiency in GDP (added value), revenue, employment, etc.
Tao feng, Mo Guihai(2009) built three unary linear regression equations between GDP, industrial output
value, total volume of imports and exports of the hinterland city with FTZ’s scale , i.e. the bonded area,
so as to estimate the relationship between FTZ’s scale and the economic development level in the
hinterland city. However, the study on the relationship between FTZ’s foreign trade development and
local economic level is still almost vacant up to now, which is essential for probing FTZ’s economic
utility and clarifying its development strategy so as to make full use of FTZ. The purpose of this paper is
to try to fill the blank study area. The paper takes WGQ FTZ as an empirical object, and analyzes the
effect on economic development in Shanghai by the total volume of imports and exports in WGQ FTZ.
This paper is organized as follows. In Section 2, the variables and sample data are simply introduced. In
Section 3, Granger causality test is carried out to clarify the causality relationship between GDP in
Shanghai and trade volume of WGQ FTZ. And then in Section 4, stepwise regression is introduced to
quantitatively analyze their relationship. Finally, Section 5 presents the conclusions to be drawn from
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the paper.
2 Variables and Data
Because GDP can reveal the comprehensive economic development level, GDP in Shanghai City is
taken as the explained variable. The total volume of imports and exports in WGQ FTZ is taken as an
explanatory variable. In view that WGQ FTZ began to operate in 1993, and some data of the earliest
several years are very small, the annual data from 1996 to 2009 are taken as the original sample series so
as to avoid the possible analysis deflection caused by the intense growth data in the first 3 years.
Furthermore, both of the sample series are treated by logarithmic transformation to avoid the impact of
heteroscedasticity (Zhang Bing, Jin Ge, 2009) (Fan Bonai, Wang Yibing, 2004), that is, LnGDP
represents the economic development in Shanghai, and LnFTZtrade represents the total import and
export trade. The relevant original data come from Shanghai Statistics and Shanghai Free Trade Zone
Statistics Report.
3 Causality Test of WGQ FTZ’s Trade and GDP in Shanghai
Figure 1 GDP in Shanghai and Trade Volume in WGQ FTZ
Figure 1 presents the development of GDP in Shanghai City and trade volume in WGQ FTZ from 1996
to 2009. Their Pearson correlation coefficient is about 0.96, which shows that they have very close
linear correlation. In order to verify whether they have a causality relationship or not, this paper adopted
Granger causality test to analyze.
3.1 Stationarity Test of Time Series
Because Granger causality test will not take into effect except for stationary time series or for
nonstationary variables with cointegration relationship, both the time series of Shanghai GDP and WGQ
FTZ’s trade volume from 1996 to 2009 are firstly carried out unit root tests before Granger causality test.
If the test results show that these time series are not stationary, the series need to be treated by d-order
difference transformation.
The unit root testing results by means of ADF method are shown in Table 1. According to the testing
results, the original and 1-order difference sequences of both LnGDP and LnFTZtrade are not stationary
with significance level of 0.01 and 0.05, but the 2-order difference series have no unit roots, they are
stationary with significance level of 0.01, 0.05 and 0.10. Herein, LnGDP~I(2) LnFTZtrade~I(2) they
are both 2-order integration serial data. The reason why these time series are 2-order integration serial
data lies in the very rapid growth of Shanghai economy and WGQ FTZ’s international trade since late
last century.
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Variables
LnGDP
LnFTZtrade
△LnGDP
△LnFTZtrade
△ LnGDP
△ LnFTZtrade
2
2
Table 1 results of unit root test
Threshold
(C,T,K)
ADF Statistics
1%
5%
（C,T,2）
（C,T,2）
（C,T,2）
（C,T,2）
（N,N,1）
（N,N,1）
-1.58
10%
Stationary
or not
-4.89
-3.83
-3.36
No
0.95
-5.12
-3.93
-3.42
No
-2.45
-4.99
-3.88
-3.39
No
-3.63
-5.12
-3.93
-3.42
No
-5.05
-2.82
-1.98
-1.60
Yes
-3.86
-2.82
-1.98
-1.60
Yes
3.2 Granger causality test
Now, the 2-order difference series of LnGDP and LnFTZtrade can be carried out Granger causality test.
The causality test results are as shown in Table 2. At the 0.05 significance level, WGQ FTZ’s trade
volume is Granger cause of Shanghai GDP when lag is 1; whereas this causality disappears when lags
equal to 2 and 3, which shows that the effect upon Shanghai GDP produced by WGQ FTZ’s trade
development becomes weaker and weaker with the increase of lag. At the 0.05 significance level, GDP
is not Granger cause of WGQ FTZ’s trade with any lag, which shows that the two economic indicators
only have a unilateral Granger causality. On the whole, the increase of WGQ FTZ’s trade volume causes
the increase of Shanghai GDP, and it can take into effect in 2or 3 year.
Table 2 results of Granger causality test
lags
F-Statistic
Probability
Diagnosis
LnFTZtrade does not Granger Cause LnGDP
1
7.94
0.02
Reject H0
LnGDP does not Granger Cause LnFTZtrade
1
3.21
0.11
Accept H0
LnFTZtrade does not Granger Cause LnGDP
2
1.15
0.39
Accept H0
LnGDP does not Granger Cause LnFTZtrade
2
0.02
0.98
Accept H0
LnFTZtrade does not Granger Cause LnGDP
3
6.07
0.14
Accept H0
LnGDP does not Granger Cause LnFTZtrade
3
2.65
0.29
Accept H0
Hypothesis H0
4 Stepwise Regression of WGQ FTZ’s Trade and GDP in Shanghai
In order to further quantitatively analyze the relationship between WGQ FTZ’s trade and GDP in
Shanghai, three explanatory variables, i.e. fixed assets investment in shanghai (Invest), gross industrial
output value (Industry) and trade volume outside of WGQ FTZ in Shanghai (FBtrade) are considered
together. It is because that fixed assets investment, gross industrial output value and trade volume are
closely relevant to the local economy development, they are among the influence factors of GDP. On the
other side, multivariate regression model usually gets more ideal fitting results than simple regression
model. It should be noted that the total trade volume of Shanghai is divided into Btrade and FBtrade two
parts according to belonging in WGQ FTZ or not, which is for comparison of their effects on local
economy development. The three new variables are also treated by logarithmic transformation.
Stepwise regression is adopted in this paper because it can efficiently remove the deviation caused by
multicollinearity among the explanatory variables. In each step, some more important variables will be
reserved, and other relatively less important variables will be excluded. And the final multivariate
regression model will be only comprised of several most important variables (Lu Mao, 2007). For the
multivariate regression model between GDP in Shanghai and the above four explanatory variables,
stepwise regression phases out gross industrial output value (LnIndustry) and trade volume outside of
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WGQ FTZ (LnFBtrade), and obtains the final binary linear regression model as follows:
LnGDP = 2.753 + 0.626LnInvest + 0.223LnBtrade
(1)
t=9.496
(t=11.777)
The determination coefficient R2 of equation (1) equals to 0.994, which shows that the regression model
has a very high degree of fitting. The values of t statistics are greater than t0.025(11), which indicates that
the regression coefficients are significant. The F statistic is 874.428, much larger than F0.005(2,11),herein
the regression equation is very significant.
Equation (1) shows that, when WGQ FTZ’s trade volume is increased by 1 percentage point, Shanghai’s
GDP will be increased by about 0.223 percentage points; when the fixed assets investment in Shanghai
is increased by 1 percentage point, Shanghai’s GDP will be increased by about 0.626 percentage points.
（
）
5 Conclusion
From the above qualitative and quantitative analysis of the relationship between GDP in Shanghai and
trade volume in WGQ FTZ, the follows can be conducted:
1 The trade development of WGQ FTZ is the significant cause of GDP development in Shanghai from
1996 to 2009, whereas, the latter is not cause of the former. It verifies that the construction and
development of free trade zone will play a leading role in promoting local economic development.
2 In accordance with Granger causality and the relevant data treatment, WGQ FTZ’s trade increase can
impact on GDP growth in 2 or 3 years, which means that the effect can continue for some time. It is
because that the political privileges of FTZ can attract large number of foreign investment, introduce
advanced equipments and technologies, and further diffuse the advanced technologies into the local area.
Meanwhile, the development of FTZ can also expand the employment. So that WGQ FTZ can
continually boost local GDP growth.
3 Results of stepwise regression show that the four explanatory variables are multi-collinear, fixed assets
investment in shanghai (LnInvest) and WGQ FTZ’s trade (LnBtrade) play much more significant effects
on local economy development than gross industrial output value (LnIndustry) and trade volume outside
of WGQ FTZ (LnFBtrade). Hence, from the point of foreign trade, FTZ’s trade plays much greater role
in local economy development. Although the trade volume outside of WGQ FTZ keeps rapid growth in
the past 14 years, it takes much less effects in prompting local economy than WGQ FTZ’s trade.
References
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