Impacts of China’s Emergence on the World Economy: A Value Chain Perspective

Abstract

This paper sheds light on the demand-side impact of China’s emergence on the world economy from a value chain perspective. A measure linking final demand with value-added in the context of global value chains is developed. Data from the World Input-Output Database is used to analyze foreign value-added induced by final demand in China. It is found that foreign value-added to meet final demand in China increases over time except during 2008-2009, proving that China has a significant power to shape the world economy through its final demand. Besides, it is found that about 88% of foreign value-added is absorbed in China through intermediate imports. In addition, how and to what extend the final demand in China contributes to other countries’ GDP growth is investigated. Results show that continuous increase in foreign value-added absorbed in China becomes a ballooning source of economic growth, and final demand in China is rather a remedy in aftermath of the global recession during 2008-2009. Finally, it is found that the increase in foreign value-added absorbed in China is due not only to the surge in final demand but also to bullwhip effect along global value chains.