Abstract
We present a two-country two-stage growth model capturing several salient features of the special US–China relationship and reproducing the process of export-led growth and structural change in China. In phase 1, China accumulates and sterilizes US assets (and finances US consumption) as it pegs the renminbi to the dollar at an undervalued level, thus stimulating the domestic production of tradables, compressing domestic consumption and facilitating the transition of surplus labor into the modern sectors of the economy. In phase 2, we analyze possible future scenarios. In Scenario A, the Chinese fiscal policy is effective in partially substituting exports by shifting the domestic demand toward tradables. Scenario B emphasizes the risks for China of abandoning too early the pegging. Scenario C shows that the Chinese continuation of an export-led growth strategy is economically feasible.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.