Effects of China's recent development in the rest of the world: With special attention to Latin America

Abstract

In one respect, China's economic awakening is bad for those economies that have been technological ahead of China and that China is now catching up to. The special feature of China's advance in recent decades has been its harnessing a high volume of Chinese saving to domestic investment projects involving technology transfer through cooperative arrangements with overseas corporations in the West, especially the US. The openness of export markets to China has served to amplify the resulting investment opportunities. The result has been a phenomenal increase of productivity and of the supply of exports. The negative effect for the US and other advanced economies in the West stems from the resulting import substitution by China, thus a decline in overseas demand for US exports, hence a deterioration in the US terms of trade and resulting decline in the real factor rewards that US producers can afford to pay to domestic inputs, including labour, particularly low-skill manufacturing labor. Of course, there are in other respects some important gains for the West from China's commercial success and economic development.