## _wp10165

## Source details

**Canonical URL:** [_wp10165](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10165.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10165.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10165.pdf.json)

---

### I. INTRODUCTION
- China’s economy increased nearly twenty-fold in U.S. dollar terms in the last 30 years.
- Real GDP growth has averaged 10 percent annually, implying GDP doubled every 7–8 years.
- Several hundred million people have risen out of poverty.
- China accounts for one-fifth of the world’s population.
- Opening up has increased China’s linkages with the world through trade, capital flows, use of China’s currency abroad, and correlated market sentiment.
- Identified channels of influence:
  - China’s imports boosting partner countries’ exports and GDP; China’s exports reducing partner net exports but possibly improving welfare via lower-cost products.
  - China’s demand affecting world prices for key inputs and terms of trade.
  - China’s role in processing trade affecting the “Asian supply chain.”
  - Capital flows to China (FDI, portfolio flows) and from China (purchases of foreign Treasury and private securities).
  - Spillovers to market confidence.
- Paper structure:
  - Section II: China’s role in the world economy based on trade metrics.
  - Section III: Business-cycle impact using VARs.
  - Section IV: Long-term impact using 5-year average growth regressions.
  - Section V: Conclusion.

### II. CHINA AS A TRADE PARTNER — key statistics and sectoral shifts
- China’s share in world GDP (PPP basis): 2 percent in 1980 → nearly 12 percent in 2008.
- China’s share of world trade: 1 percent in 1980 → over 8 percent in 2008.
- Trade with China as a share of world GDP (market exchange rates): 0.3 percent in 1980 → 4.4 percent in 2008.
- As of 2008, China accounted for 6 percent of the rest of the world’s exports and 10 percent of the rest of the world’s imports, compared with 1 percent each in 1980.
- China’s GDP at current exchange rates is one-fifth that of the United States; private consumption is around one-eighth that of the United States (IMF, 2009).
- China accounts for 3 percent of world imports of consumer goods and 4 percent of world import growth.
- Sectoral market share changes:
  - China’s share in world imports of commodities: negligible in 1980s → 4 percent by 2000 → 8 percent by 2008.
  - China’s share in world exports of medium- and high-technology manufactured goods: low in 1980s → 5 percent by 2000 → 12 percent by 2008.
- Since 2002, China has been the largest supplier of U.S. consumer electronics and information technology hardware.
- Regional and country-level shares (1980–2008):
  - China accounts for nearly 12 percent of other emerging Asian countries’ exports and imports in 2008.
  - China accounted for 8 percent of the rest of Asia’s trade during the past decade, compared with 2 percent during 1980–89.
  - Africa and Middle East: external trade with China ≈ one-tenth in 2008 (just over and just under, respectively).
  - Western Hemisphere: China’s share rose 15-fold to nearly 8 percent in 2008.
  - European Union: China’s share rose 10-fold to 4 percent in 2008.
  - United States: China’s share of its trade rose to 12 percent by 2008 from 1 percent in 1980.
  - Asian G-20: China’s share ranges from 10 percent (Indonesia) to 22 percent (Korea).
  - India: China’s share grew from less than 1 percent to nearly 12 percent.
- Direct contribution of net exports to GDP growth:
  - United States: total net exports contributed -0.1 percentage point to GDP growth annually during 2001–08; net imports from China made a slightly larger negative contribution.
  - UK: similar negative impact.
  - France, Germany, Italy: net imports from China made a very small (less than -0.1 percentage point) negative contribution.
  - Asia: net exports to China made relatively large positive contributions to growth in many economies (notably Hong Kong SAR, Korea, Malaysia, the Philippines, Taiwan Province of China).
- Capital flow shares:
  - FDI inflows into China: 7 percent of gross world FDI inflows in 2009, compared with 1 percent in 1980.
  - FDI outflows from China: negligible as recently as 2004 → 4 percent of global outflows as of 2009.

### III. GROWTH SPILLOVERS — business-cycle evidence and methods
- Data and methods:
  - Unbalanced panel annual data for 172 economies for 1960–2007.
  - Estimation approaches: unrestricted panel VAR, vector error correction model (ECM), variance decomposition, and models examining trade channel transmission.
- VAR key results:
  - Full 1960–2007: cumulative response of GDP growth in the rest of the world to a Cholesky 1-standard-deviation shock in China’s GDP growth is close to zero.
  - Last 2 decades: cumulative response reaches 0.4 percentage points after 3 years and 1 percentage point after 5 years.
  - Elasticity interpretation: a 1 percentage point shock to China’s GDP growth is followed by a cumulative response in other countries’ GDP growth of 0.4 percentage points over 5 years.
  - About 60 percent of the impact appears transmitted through trade channels (comparison with and without trading partner growth as exogenous in the VAR).
- ECM results:
  - Comparable Cholesky 1-standard-deviation effect: 1.2 percentage points in 3 years and 3.2 percentage points in 5 years.
  - ECM accumulated response (1988–2007) for the rest of the world to a Cholesky one standard deviation in China’s GDP growth:
    - Year 1: 0.00
    - Year 2: 0.46
    - Year 3: 1.20
    - Year 4: 2.19
    - Year 5: 3.20
- Regional (Asia-only) VAR:
  - Focusing on 1988–2007, impact of China’s growth on the rest of Asia is higher than on the rest of the world during the first 3 years.
  - Once controlling for trading partner growth, China’s spillover on Asian growth is stronger than on the rest of the world for the full 5 years.
- Alternative variance decomposition (Ahmed and Loungani, 1999 framework):
  - External variables include real price of oil, terms of trade, weighted average growth in trading partners, and China’s real GDP growth as separate external variable.
  - Findings:
    - Foreign output shocks (trading partner growth including China) explain 85 percent of the variance one year after the shock, and 79 percent 4 years later.
    - Oil price shocks explain 8–10 percent of output fluctuations over the same period.
    - Shocks from growth in China explain over 8 percent of the output fluctuations explained by external variables 4 years after the shock.
    - China’s growth matters more for domestic output fluctuations than do terms of trade shocks.
  - Including China’s growth separately captures spillovers from nontrade-related channels beyond trading-partner growth.

### IV. LONG-TERM IMPACT — panel regression methodology and findings
- Methodology:
  - Panel regression with fixed country effects (following Arora and Vamvakidis, 2004 and 2005).
  - Dependent variable: average per capita real GDP growth rate (constant 2000 U.S. dollars).
  - Standard growth controls: convergence (log of initial per capita GDP), age dependency ratio, gross domestic investment as percent of GDP, secondary school enrollment ratio, trade openness (exports + imports as percent of GDP), government consumption spending as percent of GDP, inflation, and time trend.
  - Additional China-related regressors: China per capita GDP growth; China growth × time trend; China growth × distance from China (weighted distance of each capital from Beijing); China growth × ratio of exports to China and Hong Kong to GDP; China growth × Asia dummy.
  - Controls to separate trade vs. global trends: world real per capita GDP growth; growth of real per capita GDP in trading partners.
  - Data: World Bank’s World Development Indicators and IMF Direction of Trade Statistics.
  - Sample and timing: 5-year averages for 1963–2007; total sample 151 economies (unbalanced panel); China excluded as it is an independent variable; robustness tested with ten-year averages and alternative period 1988–2007.
  - Fixed-effects model chosen based on Hausman test.
- Long-term results (baseline and interactions):
  - Baseline (1963–2007) with China growth added: coefficient on China’s growth statistically insignificant and close to zero.
  - Standard growth determinants: positive correlation with investment and trade; negative correlation with initial per capita GDP, age dependency, government consumption, and inflation.
  - China growth × time trend:
    - Interaction positive and statistically significant; China growth alone becomes negative and statistically significant in that specification.
    - Interpretation: spillover effects from China to the rest of the world have increased over time; impact turned positive in the 1980s.
    - Quantitative: faster growth in China’s per capita GDP by 1 percent is correlated with faster growth in the rest of the world by 0.8 percent in the last period of the sample, controlling for other factors.
  - Distance interaction:
    - China growth coefficient positive and significant; interaction China growth × weighted distance negative and significant.
    - Interpretation: positive correlation between growth in other countries and China’s growth that decreases with distance.
    - Quantitative example: a 1 percent increase in China’s growth is correlated with faster growth by 0.32 percent in Korea (closest country by measure); correlation becomes zero or negative for countries at least as far as Jamaica (28 of 151 countries).
  - Diminishing role of distance over time:
    - Specification with China growth × weighted distance × time trend: China growth positive and significant; China growth × weighted distance negative and significant; China growth × weighted distance × time trend positive and significant.
    - Interpretation: the weakening of spillovers with distance has diminished over time—China’s growth increasingly affects more distant countries.
- Robustness:
  - Results robust to ten-year averages and to limiting sample to countries with observations for entire period.
  - Fixed-effects choice justified by Hausman test.

### Key empirical findings on spillovers from China (concise)
- VAR estimates: cumulative impact on the rest of the world of a 1-standard deviation shock in Chinese growth reaches 0.4 percentage points over 3 years and 1 percentage point over 5 years.
- ECM results (1988–2007): accumulated response for rest of the world to a Cholesky one standard deviation in China’s GDP growth:
  - Year 1: 0.00
  - Year 2: 0.46
  - Year 3: 1.20
  - Year 4: 2.19
  - Year 5: 3.20
- Panel regressions (last 2 decades): a 1 percentage point increase in China’s growth is correlated with an average 0.5 percentage point increase in the growth of other countries.
- Distance effects have diminished over time; spillovers initially concentrated in neighboring countries but increasingly affect more distant countries.

### Robustness, specification sensitivity, and transmission channels
- Sample period sensitivity:
  - 1988–2007 yields a positive and statistically significant estimate of China growth (at the 10 percent level) in some specifications.
- Trade interaction:
  - Interaction of China growth with ratio of exports to China (including Hong Kong SAR) to GDP is positive and statistically significant (at the 10 percent level), suggesting larger effects for countries trading more with China.
- Asia interaction:
  - China growth × Asia dummy positive and statistically significant in some specifications; in 1988–2007 the Asia interaction is not statistically significant while China growth alone is positive (at the 10 percent level), implying broader spillovers beyond Asia in recent decades.
- Controlling for trading partner growth and world trends:
  - Including weighted trading-partner growth yields a positive and statistically significant estimate for trading partner growth; China growth × time trend remains positive and statistically significant but smaller.
  - Including world per capita GDP growth shows it is not statistically significant and does not alter main results, suggesting China’s impact is separate from common global shocks.
- Transmission channels:
  - Trade accounts for a substantial share (about 60 percent) of short-term transmission in VAR results.
  - Inclusion of China growth as a separate external variable captures nontrade-related channels beyond trading-partner growth.

### Relative importance of external shocks (panel ECM variance decomposition, 1988–2007; percent of variance explained by all external variables)
- Oil price shock: Year 2 = 7.9; Year 3 = 11.9; Year 4 = 11.3; Year 5 = 10.0.
- Terms of trade shock: Year 2 = 4.0; Year 3 = 2.7; Year 4 = 2.3; Year 5 = 2.1.
- Foreign output shock: Year 2 = 85.3; Year 3 = 82.6; Year 4 = 78.7; Year 5 = 79.5.
- Shocks from growth in China: Year 2 = 2.8; Year 3 = 2.8; Year 4 = 7.7; Year 5 = 8.4.

### Interpretation and implications
- Aggregate impact: VAR, ECM, and panel regression estimates consistently indicate a substantial and significant short-term spillover effect of Chinese growth on the rest of the world and a positive medium-term correlation between China’s growth and growth elsewhere.
- Transmission channels: trade is an important channel (positive export interaction), but evidence controlling for trading-partner growth and the insignificance of world per capita GDP growth imply additional transmission channels beyond trade and common global shocks.
- Geography: the diminishing role of physical distance over time suggests evolving channels of transmission as China’s integration with the world economy deepens.

### Recommendations for further research
- Document and quantify the various channels of transmission (trade composition, capital flows, supply-chain integration, commodity demand, and other channels).
- Investigate how changes in the structure of the Chinese economy and the composition of its trade and capital flows alter spillovers over time.
- Extend the quantitative analysis beyond aggregate impacts to sectoral and country-specific mechanisms.

*Source: _wp10165 - References .............................................................................................................*

### References .............................................................................................................

### _wp10165 - References .............................................................................................................

### I. INTRODUCTION
- China's economy increased nearly twenty-fold in U.S. dollar terms in the last 30 years.
- Real GDP growth has averaged 10 percent annually, implying GDP doubled every 7–8 years.
- Several hundred million people have risen out of poverty.
- China accounts for one-fifth of the world’s population; Summers (2007) highlights the global importance of China’s rapid growth.
- Opening up has increased China’s linkages with the world: share in world trade, capital flows, use of China’s currency abroad, and correlated market sentiment.
- Foreign private sector participation expanded in exports, intermediate inputs, commodities, and final goods and services.
- Existing empirical work focuses on specific markets (commodities, automobiles, processing inputs, U.S. Treasury securities); less attention on China’s impact on neighbors and the world.
- This paper aims to quantify China’s impact on growth in the rest of Asia and the world over the past 5 decades, assessing both business-cycle and long-term effects.
- Channels of influence identified:
  - China’s imports boosting partner countries’ exports and GDP; China’s exports reducing partner net exports but possibly improving welfare via lower-cost products.
  - China’s demand affecting world prices for key inputs and terms of trade.
  - China’s role in processing trade affecting the “Asian supply chain.”
  - Capital flows to China (FDI, portfolio flows) and from China (purchases of foreign Treasury and private securities).
  - Spillovers to market confidence.
- Paper organization:
  - Section II: China’s role in the world economy based on trade metrics.
  - Section III: Business-cycle impact using VARs.
  - Section IV: Long-term impact using 5-year average growth regressions.
  - Section V: Conclusion.

### II. CHINA AS A TRADE PARTNER
- China’s share in world GDP (PPP basis) rose from 2 percent in 1980 to nearly 12 percent in 2008.
- China’s share of world trade: 1 percent in 1980 to over 8 percent in 2008.
- Trade with China as a share of world GDP (market exchange rates): 0.3 percent in 1980 to 4.4 percent in 2008.
- As of 2008, China accounted for 6 percent of the rest of the world’s exports and 10 percent of the rest of the world’s imports, compared with 1 percent each in 1980.
- China's GDP at current exchange rates is one-fifth that of the United States; private consumption is around one-eighth that of the United States (IMF, 2009).
- China accounts for 3 percent of world imports of consumer goods and 4 percent of world import growth.
- Sectoral market share changes:
  - China’s share in world imports of commodities: negligible in 1980s → 4 percent by 2000 → 8 percent by 2008.
  - China’s share in world exports of medium- and high-technology manufactured goods: low in 1980s → 5 percent by 2000 → 12 percent by 2008.
- Since 2002, China has been the largest supplier of U.S. consumer electronics and information technology hardware (Branstetter and Lardy, 2006).
- Regional shares (1980–2008):
  - China accounts for nearly 12 percent of other emerging Asian countries’ exports and imports in 2008.
  - China accounted for 8 percent of the rest of Asia’s trade during the past decade, compared with 2 percent during 1980–89.
  - Among African and Middle Eastern countries, external trade with China accounts for just over and just under one-tenth of total external trade, respectively, in 2008.
  - For Western Hemisphere, China’s share rose 15-fold to nearly 8 percent in 2008.
  - For the European Union, China’s share rose 10-fold to 4 percent in 2008.
- Major countries:
  - United States: China’s share of its trade rose to 12 percent by 2008 from 1 percent in 1980.
  - France, Germany, Italy, UK: share rose to 3–5 percent in 2008 from one-tenth that level in 1980.
  - Asian G-20: China’s share ranges from 10 percent (Indonesia) to 22 percent (Korea).
  - India: China’s share grew from less than 1 percent to nearly 12 percent.
- Direct contribution of net exports to GDP growth:
  - United States: total net exports contributed -0.1 percentage point to GDP growth annually during 2001–08; net imports from China made a slightly larger negative contribution.
  - UK: similar negative impact.
  - France, Germany, Italy: net imports from China made a very small (less than -0.1 percentage point) negative contribution.
  - Asia: net exports to China made relatively large positive contributions to growth in many economies (notably Hong Kong SAR, Korea, Malaysia, the Philippines, Taiwan Province of China) due to inputs exported to China as part of the Asian supply chain.
- Capital flow shares:
  - FDI inflows into China: 7 percent of gross world FDI inflows in 2009, compared with 1 percent in 1980.
  - FDI outflows from China: negligible as recently as 2004 → 4 percent of global outflows as of 2009.

### III. GROWTH SPILLOVERS: IMPACT OF CHINA’S ECONOMIC GROWTH OVER THE BUSINESS CYCLE
- Data and methods:
  - Unbalanced panel annual data for 172 economies for 1960–2007.
  - Estimation: unrestricted panel VAR, vector error correction model, variance decomposition, and models examining trade channel transmission.
- Key VAR results:
  - For full 1960–2007 period cumulative response of GDP growth in the rest of the world to a Cholesky 1-standard-deviation shock in China’s GDP growth is close to zero.
  - For the last 2 decades, cumulative response reaches 0.4 percentage points after 3 years and 1 percentage point after 5 years (Table 5, row 2).
  - Elasticity interpretation: a 1 percentage point shock to China’s GDP growth is followed by a cumulative response in other countries’ GDP growth of 0.4 percentage points over 5 years.
  - About 60 percent of the impact appears transmitted through trade channels (comparison with and without trading partner growth as exogenous in the VAR; Table 5, rows 2 and 3).
- Error correction model results:
  - Comparable Cholesky 1-standard-deviation effect: 1.2 percentage points in 3 years and 3.2 percentage points in 5 years (Table 5, row 5).
- Regional (Asia-only) VAR:
  - Focusing on 1988–2007, impact of China’s growth on the rest of Asia is higher than on the rest of the world during the first 3 years (Table 5, row 4).
  - Once controlling for trading partner growth, China’s spillover on Asian growth is stronger than on the rest of the world for the full 5 years.
- Alternative variance decomposition approach (Ahmed and Loungani, 1999 framework; includes domestic and external variables):
  - External variables include real price of oil, terms of trade, weighted average growth in trading partners, and China’s real GDP growth as separate external variable.
  - Findings (Table 6):
    - Foreign output shocks (trading partner growth including China) explain 85 percent of the variance one year after the shock, and 79 percent 4 years later.
    - Oil price shocks explain 8–10 percent of output fluctuations over the same period.
    - Shocks from growth in China explain over 8 percent of the output fluctuations explained by external variables 4 years after the shock.
    - China’s growth matters more for domestic output fluctuations than do terms of trade shocks.
  - Including China’s growth separately captures spillovers from nontrade-related channels beyond trading-partner growth.

### IV. GROWTH SPILLOVERS: IMPLICATIONS OF CHINA’S ECONOMIC GROWTH OVER THE LONG TERM
- Methodology:
  - Panel regression with fixed country effects (following Arora and Vamvakidis, 2004 and 2005).
  - Dependent variable: average per capita real GDP growth rate (constant 2000 U.S. dollars).
  - Independent variables (standard growth controls):
    - convergence (log of per capita real GDP in initial year);
    - age dependency ratio;
    - gross domestic investment as percent of GDP;
    - secondary school enrollment ratio;
    - trade openness (exports + imports as percent of GDP);
    - government consumption spending as percent of GDP;
    - inflation;
    - time trend.
  - Additional China-related regressors:
    - growth rate of real per capita GDP in China;
    - interaction terms: China growth × time trend; China growth × distance from China (weighted distance of each capital from Beijing); China growth × ratio of exports to China and Hong Kong to GDP; China growth × Asia dummy.
  - Controls to separate trade vs. global trends:
    - world real per capita GDP growth;
    - growth of real per capita GDP in trading partners.
  - Data sources:
    - World Bank’s World Development Indicators for most variables.
    - Growth in trading partners estimated using IMF Direction of Trade Statistics (Arora and Vamvakidis, 2005).
  - Sample and timing:
    - 5-year averages for 1963–2007 (initial GDP per capita from first year of each 5-year period).
    - Robustness: ten-year averages also tested; alternative period 1988–2007 estimated.
    - Total sample: 151 economies (unbalanced panel). China excluded as it is an independent variable.
    - Fixed-effects model chosen based on Hausman test.
- Long-term results:
  - Baseline (1963–2007) with China growth added: coefficient on China’s growth statistically insignificant and close to zero (first specification, Table 7).
  - Standard growth determinants behave as expected: positive correlation with investment and trade; negative correlation with initial per capita GDP, age dependency, government consumption, and inflation.
  - Interaction China growth × time trend: positive and statistically significant; China growth alone becomes negative and statistically significant in that specification (second specification, Table 7).
    - Interpretation: spillover effects from China to the rest of the world have increased over time; the impact turned positive in the 1980s.
    - Quantitative: faster growth in China’s per capita GDP by 1 percent is correlated with faster growth in the rest of the world by 0.8 percent in the last period of the sample, controlling for other factors.
  - Distance interaction:
    - China growth × weighted distance from China: China’s growth coefficient positive and significant; interaction term negative and significant (third specification, Table 7).
    - Interpretation: positive correlation between growth in other countries and China’s growth that decreases with distance.
    - Quantitative example: a 1 percent increase in China’s growth is correlated with faster growth by 0.32 percent in Korea (closest country by measure); correlation becomes zero or negative for countries at least as far as Jamaica (28 of 151 countries).
  - Diminishing role of distance over time:
    - Specification including China growth × weighted distance × time trend: China growth positive and significant; interaction China growth × weighted distance negative and significant; interaction China growth × weighted distance × time trend positive and significant (fourth specification, Table 7).
    - Interpretation: the weakening of spillovers with distance has diminished over time—China’s growth increasingly affects more distant countries.
- Robustness:
  - Results robust to ten-year averages and to limiting sample to countries with observations for entire period.
  - Fixed-effects choice justified by Hausman test.
  - Further robustness tests mentioned but not fully detailed in supplied excerpt.

*Source: _wp10165 - References .............................................................................................................*

### conclusion that links between growth in China and the rest of the world have increased over

### _wp10165 - conclusion that links between growth in China and the rest of the world have increased over

### Key empirical findings on spillovers from China
- VAR estimates: the cumulative impact on the rest of the world of a 1-standard deviation shock in Chinese growth reaches 0.4 percentage points over 3 years and 1 percentage point over 5 years.  
- Error-correction model (ECM) results (1988–2007): accumulated response of GDP growth to a Cholesky one standard deviation in China’s GDP growth for the rest of the world is: 0.00 (Year 1), 0.46 (Year 2), 1.20 (Year 3), 2.19 (Year 4), 3.20 (Year 5).  
- Panel regressions (last 2 decades): a 1 percentage point increase in China’s growth is correlated with an average 0.5 percentage point increase in the growth of other countries.  
- Distance effects have diminished over time: China’s spillovers initially mattered mainly for neighboring countries, but the importance of distance has declined in recent decades.

### Robustness tests and specification results
- Sample period sensitivity:
  - Using the period 1988–2007 (first specification in Table 8) yields a positive and statistically significant estimate of growth in China, although at the 10 percent level.  
- Trade interaction:
  - Interaction of growth in China with the ratio of exports to China (including Hong Kong SAR) to GDP (second specification in Table 8) is positive and statistically significant, although at the 10 percent level, suggesting larger effects for countries trading more with China.  
- Distance / Asia interaction:
  - Interacting growth in China with an Asia dummy (third specification in Table 8) produces a positive and statistically significant interaction while the direct China growth estimate is insignificant, indicating that growth in China mattered mainly for Asia in that specification.  
  - For the period 1988–2007 (fourth specification in Table 8), the interaction of growth in China with the Asia dummy is not statistically significant while the estimate of growth in China is positive and statistically significant, although at the 10 percent level — implying broader spillovers beyond Asia in recent decades.  
- Controlling for trading partner growth and world trends:
  - Including the growth rate of trading partners weighted by export shares (fifth specification in Table 8) yields a positive and statistically significant estimate of trading partner growth; the interaction term of growth in China with the time trend remains positive and statistically significant but smaller than in earlier specifications.  
  - Including growth in average world per capita GDP (last specification in Table 8) shows world per capita GDP growth is not statistically significant and does not alter the main results, suggesting the impact of China’s growth is separate from common global shocks.

### Relative importance of external shocks (1988–2007)
- From the panel ECM variance decomposition (percent of variance explained by all external variables):  
  - Oil price shock: 7.9 (Year 2), 11.9 (Year 3), 11.3 (Year 4), 10.0 (Year 5).  
  - Terms of trade shock: 4.0 (Year 2), 2.7 (Year 3), 2.3 (Year 4), 2.1 (Year 5).  
  - Foreign output shock: 85.3 (Year 2), 82.6 (Year 3), 78.7 (Year 4), 79.5 (Year 5).  
  - Shocks from growth in China: 2.8 (Year 2), 2.8 (Year 3), 7.7 (Year 4), 8.4 (Year 5).

### Interpretation and implications
- Aggregate impact: estimates (VAR, ECM, and panel regressions) consistently indicate a substantial and significant short-term spillover effect of Chinese growth on the rest of the world, and a positive medium-term correlation between China’s growth and growth elsewhere.  
- Transmission channels: evidence implies trade is an important channel (positive export interaction), but results controlling for trading-partner growth and the insignificance of world per capita GDP growth indicate additional transmission channels beyond trade and common global shocks.  
- Geography: the diminishing role of physical distance over time suggests evolving channels of transmission as China’s integration with the world economy deepens.

### Recommendations for further research
- Document and quantify the various channels of transmission (trade composition, capital flows, supply-chain integration, commodity demand, and other channels).  
- Investigate how changes in the structure of the Chinese economy and the composition of its trade and capital flows alter spillovers over time.  
- Extend the quantitative analysis beyond aggregate impacts to sectoral and country-specific mechanisms.

*Source: _wp10165 - conclusion that links between growth in China and the rest of the world have increased over*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10165.pdf_