Download On the Economic Growth and Industrial Structure Evolution:

On the Economic Growth and Industrial Structure Evolution:
Based on the Economic Outward Degree
XIANG Yijun, PAN Jun
Harbin University of Commerce, Harbin,150028
[email protected]
：
Abstract It is doubtless that the definite concept for the economic outward degree has not yet reached
the common agreement. Most of the studies regard the hereof concept as the meaning of dependence
degree on foreign trade, which in a sense covers up the significance of the economic outward degree.
Based on trade theories, this paper takes all kinds of the concerned factors into a certain structure and
therefore brings forward a index system, which aims at the calculation of the economic outward degree.
Taking datums of China into the system, we can also reach the ingenerate connection between economic
growth and industrial structure evolution, which shows great coherence with its real experience.
Keywords economic outward degree, evaluation index system, economic growth, industrial structure
evolution
：
1. Introduction
Ever since the reforming and opening up policy, China has maintained a rapid economic growing rate,
and its foreign trade has also kept the rising trend, which has made great contributions to the sustainable
development of the national economy. While China is on the way to be the important economic power
with its continuous improvement of economic outward degree, it has not yet formed a scientific and
comprehensive measurement of the indicator on the economic outward degree. Many literatures confuse
the economic outward degree with the dependence degree of foreign trade or the trade outward degree.
The general approach for the hereof economic outward degree is to calculate the ratio of import and
export volume among the gross national product. However, this approach is not scientific and can not
reach its real sense. Based on the comprehensive measurement of dependence degree on foreign trade
and the degree of trade openness, this paper brings forward a new evaluation index system for the
economic outward degree, and then works out the economic outward degree of China. Then, it is not
surprise to see that we can figure out the inter connection of economic growth and the industrial
structure evolution after reaching the hereof economic outward degree.
2. A Brief Review
Taking the concerned researches into consideration, we can hardly find the definite concept for the
economic outward degree and few studies on this topic. However, the studies on the dependence degree
of foreign trade and degree of trade openness, which are in a sense linked closely to hereof degree, are
paid more attention in the economics studies. There is no doubt that all these achievement can be the
foundation for economic outward degree.
Brown (1940) first proposed a concept of "mutual dependence" to show that the outward extent could
impact the economy of a country (or a region) and the economy of a country (or region) could impact its
outward external as well. Kojima (1950), in his book of "trade theory", introduced the dependence
degree of foreign trade. This concept referred the ratio of total imports and exports in a country (or a
region) gross domestic product (GDP) to express the extent of a country’s (a region’s) participation in
the international trade, or the extent of a country’s (or a region’s) economic growth dependence on
international markets. Chenery (1988) found that the dependence degree of foreign trade is generally
lower in the country with more population than the country of small population. Kuznets (1989) came to
the conclusion that there was a negative correlation between the foreign trade ratio and the level of a
country’s national economy. Therefore, small countries normally had a greater dependence on
international trade than the large ones. Edwards (1998) found even if a country’s trade was distorted
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seriously, it might still have the high dependence degree of foreign trade, which confirmed the fact that
the degree of trade dependence had noting to do with the trade policy. Thus, based on the measurement
of trade openness, many new ideas appeared in this regard. Many scholars believe that it is feasible to
continue using the traditional foreign trade ratio method. Loyd and Maclaren (2002) adopted the trade
dependency index system, using the computable general equilibrium model to improve the degree of
trade dependence, and therefore reached a set of indicators for measuring trade openness. Jay and
Kenneth (2006) insisted that trade openness should be a double-dimension concept which included not
only the contact extent between the economy of a country and the international economy, but also the
contribution of foreign trade to the country economic growth.
Regarding to the connection between trade openness and economic growth, most economists insist that
the mechanism between trade openness and economic growth should be the way of trade openness’
affection on the country's macro-economic performance, such as factor productivity, rewards of scale,
resource allocation and technological progress, etc. And then, lots of empirical researches have been
made to confirm that. On the other hand, the studies of the relationship between trade openness and
industrial development have attracted the attention of the foreign scholars. Many achievements have
been made. For example, one of the conclusions is that the trade liberalization can increase factor
productivity by resulting in scale economies, optimizing resource allocation and accelerating
technological progress. And it can make a country focus on the industry which has a comparative
advantage and higher productivity, aiming at improving the overall economic productivity, and
promoting long-term economic growth.
The Chinese economists on the other side focus the empirical studies of trade openness and economic
growth on the change of Cobb-Douglas function, which are under the help of granger causality test and
other methods to conduct empirical econometric analysis.
Taking all the concerned studies into consideration, we can come to the conclusion that there is not a
uniform evaluation index system for the economic outward degree at moment and at the same time there
are lots of deviations among all the conclusions made by scholars. However, there is also positive side in
this study, that is, with the further study of economic outward degree, the issue considered by scholars is
approaching the objective conclusion. It is from this view of point that we can say, based on most of the
concerned studies and the experiences, this paper establishes an evaluation index system for the
economic outward degree and therefore analyzes the connections among the economic outward degree,
economic growth and the industrial structure evolution.
3. An evaluation index system for economic outward degree
Considering both the definitions of dependence degree on foreign trade and the degree of trade openness,
we can now define the concept of the economic outward degree. Comparing with the original attempt to
define the concept of economic outward degree, we focus the definition on the point that the economic
outward degree is a social reproduction process of a country or a region, aiming at the purposes of
maintaining the basis of national or regional economic qualitative stability and involving the economic
elements into the international economy. In details, there are two aspects: the first is allowing the other
countries to impact national (regional) economy and the second is the fact that one country (region) can
affect the world economy. Thus, the economic outward degree means the country’s ability of
participating in the world economy in the process of social reproduction, and the ability of impacting the
world economic operations, and the ability of the communicating among the world countries and the
overall economic strength or international ability of competition.
Therefore, this paper herein divides the factors which affect the economic outward degree into five
major sections: dependence degree of foreign trade, influence degree of the economy, the ability of
attracting and utilizing foreign investment, the ability of foreign investment and the ability of foreign
cooperation and exchange. The comprehensive formula for this concept is as follows:
D6 = a X1 + b X2 + c X3 + d X4 + e X5
In the above formula, X1 represents the dependence degree of foreign trade. X2 represents the influence
degree of the economy. X3 represents the ability of attracting and utilizing foreign investment. X4
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represents the ability of foreign investment and X5 represents the ability of foreign cooperation and
exchange. And a, b, c, d, e are respectively the weights for each indicator, assigning the weight number
of project as one. Taking one country for example, the economic outward degree evaluation index
system can be reached as the table 1 showed as follows:
：
Table 1 Evaluation index system for the economic outward degree
Index dimensions
X1
Indicators Project
λ1 : The ratio of a country’s foreign trade among its GDP
λ2 : The ratio of a country’s GDP among the world’s GDP
X2
Evaluation
index system
for economic
outward
degree
λ3 : The ratio of a country’s import volume among the world’s
λ4 : The ratio of a country’s export volume among the world’s
X3
X4
X5
λ5 : The ratio of a country’s contract volume FDI among its GDP
λ6 : The ratio of a country’s actual volume FDI among its GDP
λ7 : The ratio of a country’s overseas FDI among its GDP
λ8 : The ratio of a country’s cooperation contract volume among its GDP
λ9 : The ratio of a country’s finished contract volume among its GDP
The economic outward degree brought forward in this paper involves not only the international trade of
goods or services, but also the advanced form of international trade (FDI) and China's export of capital
in other countries. In a closed condition, a country's economic development and upgrading of the
industrial structure are connected with its own internal configuration of elements allocation. However,
the truth is the world is facing the economic globalization, which makes all the countries surrounded by
the broader background. Through the international mobility of production factors and opportunity of
international industrial transfer, we can upgrade our industrial structure to achieve the economic goals.
The opportunity of utilizing international cooperation and exchanges comes from the competition.
Therefore, a country's economic outward degree should be export oriented, linked with a country's
economic growth and the upgrading of industrial structure. What must be pointed out is that the
economic outward degree is in a sense a country or region's competitive indicator, which evaluates the
economic capacity of an outward cooperation and can not reflect all the inherent problems of the
country’s economy. In addition, the higher degree of a country’s outward economy in a sense means the
higher risk because its economy has a wide international participation in the world market.
4. The empirical analysis
Based on the evaluation index system of economic outward degree brought forward in the paper, we
take the annual datum ranging from 1998 to 2007 of China to set up the index system, aiming at figuring
out China’s economic outward degree in the past 10 years, and then working out the connections among
the degree, economic growth and industrial structure evolution.
4.1 The calculation of China’s economic outward degree
According to table 1, we gather the datum of China for the evaluation index system. The detail datum
can be referred in the table 2.
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：
Table 2 1998-2007, indicators impacting on economic outward degree
Year
λ1
λ2
λ3
λ4
λ5
λ6
λ7
λ8
λ9
1998
0.3180
0.0320
0.0280
0.0360
0.0670
0.0620
0.0024
0.0120
0.0120
1999
0.3330
0.0330
0.0300
0.0350
0.0520
0.0530
0.0019
0.0130
0.0110
2000
0.3960
0.0340
0.0360
0.0400
0.0660
0.0550
0.0040
0.0140
0.0100
2001
0.3850
0.0380
0.0370
0.0440
0.0610
0.0420
0.0059
0.0140
0.0100
2002
0.4270
0.0440
0.0440
0.0510
0.0580
0.0380
0.0019
0.0120
0.0100
2003
0.5190
0.0450
0.0530
0.0580
0.0710
0.0340
0.0017
0.0130
0.0110
2004
0.5980
0.0470
0.0590
0.0650
0.0810
0.0330
0.0028
0.0140
0.0110
2005
0.6380
0.0510
0.0610
0.0730
0.0860
0.0280
0.0055
0.0150
0.0120
2006
0.6650
0.0550
0.0640
0.0800
0.0750
0.0250
0.0066
2007
0.6680
0.0600
0.0670
0.0880
0.0630
0.0240
0.0081
Data source: 1998-2008, <China Statistical Yearbook> and the World Bank database
0.0270
0.0260
0.0130
0.0150
With the calculation formula of economic outward degree, we assign very weight for each indicator as
follows:
D6 = a X1 + b X2 + c X3 + d X4 + e X5 = X1 + 3X2 +2X3 + X4 + 2X5
All the letters have the different contents, therefore in details, they are as follows:
X1= Foreign trade volume / GDP; X2= China's GDP / World GDP + China's import volume / World +
China's total import export value / total world exports; X3= Contracted foreign investment / GDP + the
actual utilization of foreign investment / GDP; X4= Foreign investment / GDP; X5= Economic
co-operation contract value / GDP + Economic Cooperation turnover / GDP. And the economic outward
degrees for the last ten years of China are shown in the following table3.
： Economic outward degree for China during 1998-2007
Table 3
year
1998
Economic outward Degree
1999
2000
2001
2002
2003
2004
2005
2006
2007
0.9144 0.8869 1.0200 1.0019 1.0819 1.2467 1.3918 1.4805 1.5486 1.5771
4.2 The connections among economic outward degree, economic growth and the industrial
structure evolution
Ever since the reforming and opening up, China has been busy with expanding its foreign trade and
performing the strategy of "going out", aiming at encouraging and supporting its qualified enterprises of
various ownerships to involve themselves into the international rules and foreign cooperation. Further
more, this strategy and hereof policy have accelerated the rapid development of China's economy and
promoted China's industrial structure optimizing and upgrading. China's economic growth and its
industries’ proportion in GDP can be reached in the following table 4.
：
Table 4 1998-2007 Annual GDP of China and its industry's share
Year
GDP
(Billion)
Percentage of the
first industry
Percentage of the
second industry
Percentage of the
third industry
1998
8440.23
17.6
46.2
36.2
1999
8967.71
16.5
45.8
37.7
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2000
9921.46
15.1
45.9
39.0
2001
10965.52
14.4
45.1
40.5
2002
12033.27
13.7
44.8
41.5
2003
13582.28
12.8
46.0
41.2
2004
15987.83
13.4
46.2
40.4
2005
18321.74
12.2
47.7
40.1
2006
21192.35
11.3
48.7
40.0
48.6
40.1
2007
24952.99
11.3
Data source: 1998-2008, <China Statistical Yearbook>
From the datum rising from table 4, we herein set up figure 1 to work out the connections among the
degree, economic growth and industrial structure evolution. Details can be reached in the following
figure.
：
Figure 1 Connection between China’s economic outward degree and its economic growth.
From Figure 1, we can reach the conclusion that the improvement of the economic outward degree has
the positive connection with the growth of gross national product, which means the increase of China's
economic outward degree has played a significant role in China’s economic growth. In details, we can
summarize the system into the following three aspects.
The first aspect is the economy of scale. To improve a country’s economic outward degree, we mean the
higher capacity of utilizing FDI and controlling overseas FDI, which can efficiently expand the local
market demand and expand therefore the economy of scale. There is no doubt that this is the key point
for the economic growth.
The second is the reduction of the capital demand pressure. Capital flows depend on how the economy
develops. A higher economic outward degree means that the country or area has the ability to utilize
foreign capital and foreign investment better. Full use of the foreign capital can effectively compensate
for the shortage of one country’s own funds and accelerate the further development of economy.
The third one is the promotion of production value. The increase of economic outward degree can
strengthen the foreign investment and international cooperation, so that a country or a region can make
full use of the foreign advanced technology, natural resources and human resources, and then reduce its
own domestic and regional development costs. At the same time, the international competition can also
contribute to the improvement of their production capacity.
Further more, we analyze the connection between economic outward degree and the industrial structure
evolution. Taking the datum of China during the past ten years, we reach the model as the following
Figure 2.
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：
Figure 2 Connection between economic outward degree and the industries
From Figure 2, we can come to the conclusion that the increase of the economic outward degree has
positive connection with the second industry and third industry, and the negative connection with the
first industry in the share of GDP. That is, the increase of economic outward degree has played the
important role in China’s industrial structure evolution. In particular, the details can be explained as
follows:
From the view of supply, the increase of economic outward degree means that the high-tech products
can be imported into the domestic market through the foreign trade at the lower costs, which can force
the domestic enterprises to carry out new technological innovation. The technological innovation on the
other hand can make other concerned departments involve themselves into the same technological
innovation, which ultimately force the whole industries upgrading. What must be pointed out is that the
importation of various kinds of technology can directly advance local management experience, human
resources and other production factors, which can quickly increase benefits and then contribute to the
rapid development of the third industry.
From the view of demand, the increase of economic outward degree also means the rising of new
consumption group. The influx of high-quality goods and services through the international market can
raise the new consumption patterns, which will bring forward the competition for local enterprises to
optimize and improve their products and services. Meanwhile, all kinds of restrictions and protective
measures in the international market can also make those domestic enterprises who are targeting
overseas markets modify themselves to seek the development.
In addition, the increase of economic outward degree can strengthen a country’s ability of attracting and
utilizing foreign investment by the way of international cooperation and exchanges. The result of this
trend can lead to the enhancing of the resources mobility in the industries, which can enhance the
competition ability of industries and contribute to the industrial structure’s optimization and evolution.
5. Conclusion
Based on the attempt to define economic outward degree, this paper takes all kinds of the concerned
factors into a certain structure and therefore bings forward a index system, which aims at the calculation
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of economic outward degree. Considering the last ten years of datums from China and the world, we
achieve China’s economic outward degrees for the hereof ten years. From the results, we have reached
the ingenerate connections among the economic outward degrees, economic growth and the industrial
structure evolution, which shows great coherence with its real experience. There is no doubt that this
paper’s definite conclusion may positively inspire the policy makers or offer them some ideas for the
coming economic growth and the hereof industries evolution in the world wide globalization.
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