Which Sectors Really Matter for a Resilient Chinese Economy? A Structural Decomposition Analysis

Xin Mai,Chaoqun Zhan,Roger Chan

doi:10.3390/su11226333

Xin Mai, Chaoqun Zhan + Show 1 more

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https://doi.org/10.3390/su11226333

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Abstract

This study explores the structural effect of economic resilience with a case of China by examining the extent to which the major economic sectors contribute to the relative resilience of China’s overall economy. By applying a time series analysis, we use the Hodrick–Prescott filter to delineate China’s national economy on a quarterly basis and reveal different performances in responding to two recent economic crises in 1997 and 2008. Using quarterly data pertaining to eight economic sectors (including agriculture, industry, and major service sectors) and the national GDP from 1993Q1 to 2017Q2, we examine their effects on China’s economic resilience by simulating the responses of the national economy to a unit shock from each sector. Results show that the construction, real estate, and financial services have the greatest potential to “disturb” the national economy whereas the industrial sector has the greatest potential to “stabilize” it. The findings correspond with the understanding that extensive infrastructure development and the real estate boom have driven China’s rapid urban development and created economic prosperity, whereas the sectoral decomposition of economic resilience compels a critical reflection on the risks of this growth model.

Highlights

An article in The New York Times published in November 2012 [1] advocated for a paradigm shift from an emphasis on sustainability to an emphasis on resilience based on the idea that the latter is a better fit for an imbalanced world
Study about the relationship between regional policies and resilient outcomes examined the ways in which regional policies intersect with exogenous and endogenous factors to explain the relative resilience of various regions with a case of Turkey [10]
Economic structure has been hypothesized as being significant for regional resilience given that economic sectors differ in their reactions to economic shock [12] whereas the relationship between economic structure and resilience remains varied across space

Summary

Introduction

An article in The New York Times published in November 2012 [1] advocated for a paradigm shift from an emphasis on sustainability to an emphasis on resilience based on the idea that the latter is a better fit for an imbalanced world. To explain resilient performances of urban and regional development, literature has examined the relationship between economic resilience and a wide range of factors such as economic structure, labor market conditions, export orientation, innovation, entrepreneurial culture, and institutional arrangements [11]. Among these complex factors, economic structure has been hypothesized as being significant for regional resilience given that economic sectors differ in their reactions to economic shock [12] whereas the relationship between economic structure and resilience remains varied across space

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