China s Trade in Asia and the World: Long run Relation with Short run Dynamics

Transcription

1 MPRA Munich Personal RePEc Archive China s Trade in Asia and he World: Long run Relaion wih Shor run Dynamics Soumyananda Dinda Chandragup Insiue of Managemen Pana, Bihar, India, UN ESCAP 11. April 2011 Online a hp://mpra.ub.uni-muenchen.de/30664/ MPRA Paper No , posed 30. June :52 UTC

2 China s Trade in Asia and he World: Long run Relaion wih Shor run Dynamics Soumyananda Dinda Chandragup Insiue of managemen Pana, Bihar, India May 2011 Absrac This paper aemps o find he long run relaion wih shor run dynamics of China s rade in Asia and he world. Co-inegraion echnique provides he economic inegraion of China s expor o he US and is impor from Asian naions. This sudy observed ha China is economically inegraed wih Asia and he world. China has double role in inernaional rade (i) China acs as an aracor of all inpus from Asia and (ii) China pushes he producs in inernaional marke wih a comparaive advanage in price compeiion. This sudy also reveals ha he speed of China s impor from Asia is faser han ha of China s expor o he US. Key Words: Economic Inegraion, producion nework, Co-inegraion, Asia, China, he US, Error correcion, Double Engine of Growh, Expor, Impor, Long run, shor run dynamics. JEL Classificaion: C1, F1, R Address for Correspondence: Deparmen of Economics, Chandragup Insiue of managemen Pana, P. R. Hindi Bhawan, Chhajjubagh, Pana , Bihar, India. s.dinda@cimp.ac.in, sdinda2000@yahoo.co.in, and sdinda@gamil.com Ph #: , Fax:

3 1. Inroducion Recenly mos of he Asian economies recover quickly from he global economic crisis which sared in China plays a crucial role in he pos crisis era in he inernaional and a he regional level. Wih huge rade surplus, China is already making a room in he world economy (Rodrik 2010) and ready o rescue he world economy and dominae he world business. Now, none can deny China in he global arena and especially in he Eas and Souh Eas Asia region. China acs as a global player in he supply driven economy which is based on he srong producion nework in Asia region. This is popularly known as facory Asia. China is he mos imporan sraegic and decisive player in his facory Asia. The changes in he indusrializaion sraegies of developing Asian counries and heir subsequen adopion of deeper liberalisaion of FDI and rade policies 1 have iniiaed and developed producion neworks wihin Eas Asian region. China becomes he cenral aracor in he region and pulls up he Asian naions. Asia expors o China o fulfil is inpu demand. Wih low producion cos (he cheap inpus: labour and raw maerials) China pushes he comparaively low price producs in he inernaional marke. China plays a double role (a) i acs as a aracor for Asian inpus and (b) i supplies all he producs in he inernaional marke. Thus, China is inegraed in he world marke. The US represens he inernaional marke in his sudy. China is highly inegraed in economic aciviy wihin he Eas and Souh Eas Asia region and res of he World. Truly, China is he regional engine of economic developmen, which is observed is deep involvemens in he inernaional producion neworks (IPN), especially for auomoive indusry. This supply is possible wih huge inpu demand which China impors from he region i.e., he Eas and Souh Eas Asia. 1 Incenives in he form of liberalizaion policies ensure ha coss of relocaion for MNC are less han he benefis. Therefore hese counries have relied on incenives o arac foreign MNCs o esablish producion locally and gradually inegraed wih he regional producion nework. 2

4 China pushes he producs ino he world marke a relaively cheaper prices pulling poor Asian economies. China is he main engine of driving growh in he Souh Eas Asia. This Chinese growh engine pulls he demand for produced goods from Souh Eas Asia while i pushes hese producs compeiive way o he res of he world especially o he mos developed counries like he US and EU. During he crisis, China adoped some simulus package o boos up is inernal domesic demand which helped o raise he regional rade sharply. China acs as double engine 2 of growh. The global economic crisis originaed in he mos developed economies and auomaically hey have raded he crisis wih he res of he world. The economic crisis spread and widely affecs he world causing significan decline in rade, employmen and producion. Obviously expor markes disinegrae quickly and expor led growh economies search alernaive way ou of i. One of heir effors was o generae inernal demand and ook several simulus packages o boos up heir economies. Wihin shor period (around middle of 2010) mos of Asian economies reurn o heir pre-crisis level of rade (monhly daa) and financial flows look more sable han in he monhs before he crisis. From he Asia s perspecive, i looks as expors were again used as an engine o pull heir economies ou of crisis. In his conex, China plays a vial role in creaion of inernal demand and increase impor from Asian counries. China mainains is high growh rae in There are several rade performance indicaors o assess he relaive posiion of China and sub regions in global economy wih an objecive of offering some ideas on he role of rade in Asia s recovery from he crisis. All hese rade performance indicaors are readily available in several repors, for example APTIR One engine pulls Asian naions and promoes regional growh while oher engine pushes he producs o he res of he world. 3 This is differen from he Asia crisis I originaed in Asia and expored i way ou of crisis o he developed economies and hey absorbed i. So, developed world were par of soluion for he Asian crisis

5 There are numerous academic and policy papers, seminar and conference maerials, dedicaed o find he linkage of counry s rade performance wih he global or regional level. There is only few sudies address China s economic inegraion wih he world economy. Counries become economically inegraed in his globalizaion era. Here inegraion means ogeherness or closeness among naions. Inegraion is measured as he close relaionship or associaion beween wo or more defined variables. This paper measures he economic inegraion using he degree of associaion among economic variables under cerain condiions. Finally saisical co-inegraion es measures he co-movemen or move ogeher joinly on he ime pah. This sudy mainly focuses on China s economic associaion wih oher counries especially Eas and Souh Eas Asia and he world as a whole. In he pos economic crisis China came a he focus poin in he world economy. Gradually he developed world is losing he economic power and China is gaining power. I is clear ha world economic command and conrol has shifed from he developed naions o emerging economies and China is in he forefron and plays a pivoal role in he world economy wih a srong economic inegraion wih oher naions. In his conex his paper mainly invesigaes how China is economically inegraed in he Eas and Souh Eas Asia region and res of he world. From lieraure i is clear ha Asian economies are mainly inegraed in he producion nework. The producion nework is successful possibly because of he rade liberalizaion policies and several regional rade agreemens. Trade liberalizaion faciliaes smooh movemen of goods, and services and resources among hese counries. China impor inpus for heir producions and expors he world marke. Truly, China acs as a pivoal role in he Eas and Souh Eas Asia in he formaion of producion nework. Few lieraures 4

6 focused on he role of rade policy or liberalizaion in creaing he inernaional producion nework 4. The inegraion of China ino he global economy in general and Eas Asia in paricular has furher deepened inernaional producion fragmenaion o unprecedened levels (Haddad, 2007; Ahukorala, 2007). A he urn of he decade, China s processing expors (expors ha are produced from processing and/or assembly of impored inpus) accouned for nearly half of is oal expors. In 2006, 51.5% of China s inra Eas Asian rade was in machinery producs, of which more han half was rade in pars and componens. The rae of annual growh in pars and componens wih is Eas Asian parners beween 1993 and 2006 was a saggering 22.7% (Kimura and Obashi, 2008). Given he exen o which he Eas Asian counries have managed o liberalize heir capial accoun ransacions in recen years, one migh expec ha financial markes of hese economies may have become more closely linked wih one anoher han in he pas. The invesmen policy response was essenially many policy packages wih an objecive o arac foreign direc invesmen (FDI). I is worh menioning ha he argeed counries FDI policy was so aggressive, reflecing he raher igh compeiion among he counries for he alernaive manufacuring relocaions and oher counries businesses. Kimura (2006) noed 4 The concep of producion nework is based on he global value chain sysem. I underlines he noion of sequenial and inerconneced srucure of economic aciviies, wih each link in a value chain and adding value in he process (Henderson e al. 2002). Value chain may include a wide-range of relaed and dependen aciviies wihin or beween chains. More specifically, Porer divides all of he aciviies in a value chain ino wo big groups: primary and suppor. Primary aciviies include research-and-developmen, manufacuring, markeing, and logisics services; while suppor aciviies include finance, human resource managemen, and echnology developmen and procuremen. I is common for a producer of an inermediary inpu o be involved in several value chains, which can span wihin- and across- geographic boundaries. This implies ha he aciviies are no only done wihin he boundary of a single firm as in he radiional Porer s concepion of value chain bu also are done by more han one firms locaed in more han one counries or region. This large inerconneced sysem of value chain has become known as Global Value Chain (GVC) (Kuroiwa and Toh 2008). Kuroiwa and Toh (2008) viewed IPN as a complemen o GVC. I reflecs he acceleraed fragmenaion in knowledge-inensive aciviies of some value chains, which had become he modularisaion, allows he aciviies o be separaed from he value chains and o be performed a differen locaion (Erns and Luhje 2003). Producion nework is no only inegraing firms and pars of he firms bu also naional economies. Kimura and Ando (2005), define IPN o consis of verical producion chains ha are exended across counries wihin a region as well as disribuion nework across he world. 5

7 ha in response o he fear of losing FDI, ASEAN counries even ook a radical approach of acceping everybody, insead of making selecion, for heir FDI policy approach. As for rade policy, many Asian counries, and hese are Eas and Souh Eas Asian counries in paricular, cu unilaerally heir ariffs rae, which is ofen viewed as race o he boom (Baldwin 2006). 5 Moreover, according o Baldwin, some of his ariff cu came in he form of duy-drawback and duy-free reamen for he esablishmens in economic processing zone; bu, no only ha, over he ime counries realised he large benefi of giving lower rade cos by swiching from special reamens o lowering applied MFN ariff raes, and as he resul, many of hese counries coninuously cu heir ariff, unilaerally, in he pas wo decades. China inegraes mos of he naions in he Eas and Souh Eas Asia in his producion nework. Inuiively everybody accep his producion inegraion especially in auomoive indusry in his region. This producion inegraion is possible because of regional free rade agreemen and rade liberalisaion policies. These policies help o inegrae he producion sysem and srenghen marke inegraion in he region as well as he world. This producion nework sysem inegraes he naional capial markes wih he world capial marke. The resul is he huge flow of foreign direc invesmen (FDI) owards hese naions. This FDI flow over ime gradually brings all naions closer in he producion fron removing naional boundary. The characerisic of his region is ha he marke is inegraed hrough producion nework. So, FDI flow is very imporan facor ha promoes economic inegraion in he region 6. For a measure of regional inegraion in Eas Asia, one would need informaion on 5 Kuchiki (2005) menioned some anecdoal evidence on he race-o-he-boom unilaeral ariff cus. 6 This balance of paymen characerisic ogeher wih underdevelopmen of financial markes suggess ha he level of financial ransacions including bank lending and rade in regional securiies beween differen counries in Eas Asia is likely o have been relaively small, in paricular when a large Japanese bank lending o direc invesmen in oher Eas Asian counries are excluded. Furhermore, since he oubreak of he crisis, Japanese banks lending and FDI o oher Eas Asian counries have fallen dramaically. So Korea s and Taiwan s FDIs moved o oher Eas Asian counries. Singapore s FDI daa are raher skechy, bu is FDI o Malaysia and Indonesia declined during he pos crisis period from 1997 o As a resul, i would be reasonable o assume ha inra-regional financial flows in Eas Asia have been smaller han iner-regional flows beween Eas Asia on he one hand and Norh America and Europe on he oher. This feaure of iner regional capial movemens have become more visible wih he increase in curren accoun surpluses of Indonesia, 6

8 inra-regional capial flows in Eas Asia relaive o iner-regional flows beween Eas Asia 7 and he res of he world. Reliable daa on inra-or iner-regional capial flows are no available. Alernaively rade flow migh be a good indicaor of close associaion among naions. Hence, his sudy concenraes only on available China s rade flow daa, i.e., expor and impor. 2. Daa and Mehodology In his sudy he economic inegraion is measured in erms of rade flows using monhly daa on expor and impor of China during December 2005 o July For his sudy daa source is he CEIC. Monhly Daa on China s expor o he US and Asia8 s expor o China are aken from CEIC. Here, China s impor from Asia8 naions is equivalen o Asia8 s expor o China. Time period is December 2005 o July Using he monhly rade daa (from CEIC) on expor and impor his paper examines he co- inegraion relaionship beween China s expor o he US and is impor from major eigh Asian economies (hereby, Asia8). Asia8 is consising wih Souh Korea, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Philippines and Taiwan. The paper examines he characerisics of daa by uni roo es and co inegraion es. The uni roo ess are used o judge he naure of variables wheher hey are saionary or non-saionary. Following uni roo ess he co inegraion es is necessary for he variables having inegraion of order one, i.e., I(1). Malaysia, Republic of Korea, and Thailand and provides a piece of indirec evidence ha Eas Asian counries have forged igher financial links wih Norh America and Europe han wih heir neighbouring economies in he process of financial liberalizaion. The economic inegraion can be measured as he degree of associaion among naions. So, he basic crieria are he correlaion coefficien bilaerally and mulilaerally under cerain condiions. Alernaively he level of inegraion can be measured in erms of condiional correlaion and finally co- inegraion among naion in rade and FDI flows. 7 Eas Asia as i is defined o include he ASEAN members, Taiwan, Hong Kong, China, Korea, and Japan has always been a ne saver o he res of he world. 7

9 Now he long run equilibrium relaionship beween China s expor o he US (ChnXUS) and Asia8 s expor o China (Asia8XChn) is ChnXUS Asia8XChn e (1) where e is he disurbance erm. The shor run dynamics is observed in he error correcion model (ECM), i is derived from eq(1) ChnXUS Asia8 XChn e 1 (2) Where error in las period is e ChnXUS Asia XChn , is he error adjusmen coefficien or speed of error correcion, and is he whie noise. Granger causaliy is applicable for shor run, while long run equilibrium is capured in he error correcion erm. Opimum lags are required o aain 2 ~ 0, which follows zero mean and consan variance, i.e., causaliy in he ECM equ. (2) can be rewrien as. For Granger p q ChnXUS 1 i Asia8 XChn i 2 jchnxus j 1e 1 1 (2a) i1 j1 r s Asia8XChn 3i Asia8XChni 4 jchnxus j 2e1 2 (2b) i1 j1 The unidirecional Granger causaliy is running from Asia8 s expor o China o he direcion of China s expor o he US provided a leas one 1 i 0, while he unidirecional Granger causaliy is running from China s expor o he US o he direcion of Asia8 s expor o China if a leas one 4 j 0. There is a bidirecional causaliy provided boh have a leas one nonzero coefficiens in boh he equaions. 3. Resuls and discussion 8

10 Basic saisical measure of inegraion or associaion is correlaion among he variables. In his conex his sudy measures he correlaion coefficiens for China and Asia8 counries. The economic inegraion should be measured as he degree of associaion among he same variable wihin he region for he defined period. 3.1 Primary Observaions Le examine he China s regional and global inegraion. Here he basic assumpion is ha he US represens he res of he world. Now he paper examines China s expor o he US and China s impor from Asian8 counries. Fig 1 depics he China s expor o he US and Asia8 expor o China during December 2005 July I is clear from fig 1 ha China s expor and impor occur simulaneously. There is srong associaion beween China s expor o he US and impor from Asia8 naions Fig 1: China expor o US and impor from Asia8 economies ASIA8_X_CHN CHINA_X_US Fig 1 suggess ha here is a close coordinaed co movemen beween China s expor o he US and China s impor from Asia8 naions. So, China s expor o he US is closely associaed wih is impor from Asian counries and boh China s expor and impor joinly move over ime. The degree of associaion or correlaion beween China s expor and impor 9

11 is high and he correlaion coefficien is 0.80 (See 2 nd column las row of Table 1). Table 1 provides he pair wise correlaion coefficien marix. Second column shows he correlaion beween China s expor o he US and China s impor from Asian counries. All hese naions have srong associaion wih China s expor excep Philippines. Res of he columns (3-10) describe he degree of associaion or closeness among naions which are exporing o China (i.e., China s impor) in he region. Fig 2 also suppors hese high degrees of associaion among china s imporing counries from he Eas and Souh Eas Asia. These degrees of associaion measuremen are valid for only China s impor relaed economic inegraion. China is one of he imporan growing business hubs in his region 8. Fig 2 shows ha he rade paern from China o he US and ha of Asia8 counries in Eas and Souh Eas Asia region o China are very similar. I is clearly visible and noed ha here is a co- movemen among rade flow from Asia8 o China and ha of China o he US. 3.2 Basic Resuls The paper also examines his co-movemen saisically using co-inegraion echniques. Panel A in Table 2 sugges ha China s expor o he US and China s impor from Asia8 naions is non-saionary. The augmened Dickey Fuller (ADF) and Philips Perron (PP) ess sugges ha boh he variables follow inegraion of order one, i.e., I(1). The LR es indicaes wo co- inegraing equaions a 5% significance level. The esimaed long run equilibrium relaionship beween China s expor o he US and China s impors from Asia8 counries is ChnXUS * ChnMAsia Oher mos imporan business hubs are Hong Kong and Singapore. 10

12 This suggess ha here is a direc relaionship beween China s expor o he US and China s impor from Asia8. I is rue ha China inegraes he Eas and Souh Eas Asia wih he res of he world. China plays a crucial role and connecs Asia ino he global marke. This economic inegraion was successful only hrough adapaion of liberalisaion policies which acually promoed o develop producion nework in he region. 3.3 Error Correcion Using vecor error correcion model (VECM) we observe ha all he error correcion coefficiens are negaive and saisically significan. This suggess ha if here is any divergence from equilibrium relaionship i will come back o he long run equilibrium relaion. The error correcion coefficien values are he speed of convergence o he coinegraing relaion. The speed of error correcion in case of China s expor o he US is very high (84.8%) while China s impor from Asia8 is jus in ime. So he speed of China s impor from Asia8 is faser han ha of China s expor o he US. Vecor error correcion model (VECM) also provides he vecor auoregressive (VAR) srucure. From his esimaed VAR srucure he paper observes ha China s expor o he US follows auoregressive (AR) only, while China s impor from Asia8 follows AR (1) and also depends on China s expor o he US (Table 3). In erms of Granger causaliy, China s expor o he US is he cause of China s impor from Asia region. Here, Granger causaliy is unidirecional running from supply (expor o he US) o demand (impor from Asia8). In oher words, he world demand simulaes o raise China s supply o he res of he world. China s supply creaes he demand for inpus in Asia region. This induced demand acually inegraes he naions wihin region and involves in producion nework hrough rade liberalisaion. 11

13 3.4 Analysis Le r and * r denoe he change of China s expor o he US and change of China s impor from Asia8 counries, respecively. From Table 3, on he basis of saisical significance he esimaed VAR srucured equaions are r r 3 1 and where 1 and 2 are whie noise erms wih zero expecaions * * r r r 1 2 and consan variances. These equaions ake specific form depending on he saisical significance of individual parameers of VECM. Thus, he change of China s expor o he US follows auoregressive form bu saisically significan auoregressive lag is hree monh. The change of China s impor from Asia8 counries is also auoregressive form and also depends on he change of China s expor o he US. Boh saisically significan lags are one monh. If here is any disurbance in China s expor o he US i affecs he expor o he US as well as China s impor from Asia8. I should be noed ha if any shock in China s impor from Asia8 i affecs impor only, no expor. So, he direcion of causaliy is running from China s expor o he US o China s impor from Asia8. In oher words, Asia8 s expor o China will be affeced if China s expor o he US is disurbed. 4. Conclusion China is emerging as a gian in Asia as well as in he world economy. China is a major economic hub in he world and plays imporan role in he inernaional economy. From he findings i is clear ha China has double role in inernaional rade firs i aracs inpus from he Eas and Souh Eas Asia region and secondly pushes he producs in inernaional marke wih a comparaive advanage in price compeiion. This is possible because China is economically inegraed wih region and he world as a whole. Co-inegraion echnique provides he economic inegraion of China s expor o he US and is impor from Eas and 12

14 Souh Eas Asia. The error adjusmens sugges ha he speed of China s impor from Asia is faser han ha of China s expor o he US. References Anas, T. (2007). Chaper 6: Indonesia in Trade Issues in Eas Asia: Preferenial Rules of Origin, Policy Research Repor. Eas Asia and Pacific Region, Povery Reducion and Economic Managemen. The World Bank. Ando, M. (2006), Fragmenaion and Verical Inra-indusry Trade in Eas Asia, Norh American Journal of Economics and Finance, 17, pp Ahukorala, P. (2007). The Rise of China and Eas Asian Expor Performance: Is he Crowding-ou Fear Warraned. Working Papers in Trade and Developmen, No. 2007/10. Ausralian Naional Universiy. Ahukorala, P. and N. Yamashia (2006). Produc Fragmenaion Trade Inegraion: Eas Asia in Global Conex. Norh American Journal of Economics and Finance, 17, pp Ahukorala, P. (2006). Produc Fragmenaion and Trade Paerns in Eas Asia, Asian Economic Papers. 4(3), Baldwin, R.E. (2006). Mulilaerilising Regionalism: Spaghei Bowls as Building Blocs on he Pah of Global Free Trade. NBER Working Paper Series, No , Cambridge, MA: NBER. Baldwin, R.E. (2007). Managing he Noodle Bowl: The Fragiliy of Eas Asian Regionalism. Working Paper Series on Regional Economic Inegraion, No. 7, Manila: Asian Developmen Bank (ADB). Borrus, M., D. Erns and S. Haggard (2000). Inernaional Producion Neworks in Asia: Rivalry or Riches? London and New York, Rouledge. 13

15 Erns, D. and B. Luhje (2003), Global Producion Neworks, Innovaion, and Work: why Chip and Sysem Design in he IT Indusry are Moving o Asia? Eas-Wes Cener Working Paper, Economics Series, No. 63, Honolulu, Hawaii: Eas-Wes Cener. ESCAP (2006). Facs abou he Asia Pacific Trade Agreemen (Bangkok Agreemen). Trade and Invesmen Division, ESCAP, Bangkok, Thailand. Haddad, M. (March 2007), Trade Inegraion in Eas Asia: The Role of China and Producion Neworks, World Bank Policy Research Working Paper Henderson, J, P. Dicken, M. Hess, N. Coe, and H. W. Yeung (2002). Global Producion Neworks and he Analysis of Economic Developmen. Review of Inernaional Poliical Economy, 9(3), pp Kimura, F. and Obashi, A. (2008). Eas Asian Producion Neworks and he Rise of China: Regional Diversiy in Expor Performance. Paper presened a he China and he World Economy Conference, Universiy of Noingham, Ningbo Campus, November 5-6, Kimura, F. (2006). Inernaional Producion and Disribuion Neworks in Eas Asia: 18 Facs, Mechanics, and Policy Implicaion. Asian Economic Policy Review, Japan Cener for Economic Research, vol. 1(2), pages Kimura, F. and M. Ando (2005a). Two-dimensional Fragmenaion in Eas Asia: Concepual Framework and Empirics. Inernaional Review of Economics and Finance, 14, pp Kimura, F. and M. Ando (2005b). The Economic Analysis of Inernaional Producion/Disribuion Neworks in Eas Asia and Lain America: The Implicaion of Regional Trade Arrangemen. Business and Poliics, 7(1), pp

16 Kimura, F., Y. Takahashi, and K. Hayakawa (2007). Fragmenaion and Pars and Componens Trade: Comparison beween Eas Asia and Europe. Norh American Journal of Economics and Finance, 18, pp Kuchiki, A. (2005). A Flowchar Approach in A. Kuchiki and M. Tsuji (eds.), Indusrial Cluser in Asia: Analyses of Their Compeiion and Cooperaion. New York: Palgrave MacMillan, pp Ng, F. and A. Yeas (2003), Major Trade Trends in Eas Asia: Wha are Their Implicaions for Regional Cooperaion and Growh? Policy Research Working Paper No. 3084, Washingon DC: The World Bank. Park, Yung Chul and Kwanho Shin. (2009). Economic Inegraion and Changes in he Business Cycle in Eas Asia: Is he Region Decoupling from he Res of he World? Asian Economic Papers 8(1), Rodrik, Dani. (2010). Making a room for China in he world economy. American Economics Review: Paper and Proceedings 100: Sanyal, K. and R.W. Jones (1982). The Theory of Trade in Middle Producs. American Economic Review, 72, pp World Bank. (2005). Global Economic Prospecs: Trade, Regionalism, and Developmen. World Bank, Washingon DC. Yi, K. (2003). Can Verical Specializaion Explain he Growh of World Trade? Journal of Poliical Economy, 111(1), pp

17 CHINA_ X_US CHINA_X_US 1 Table 1: Pair wise Correlaion Coefficiens HONGK ONG_X _CHN HONGKONG_X_CHN INDONE SIA_X_C HN INDONESIA_X_CHN KOREA_ X_CHN MALAYS IA_X_C HN PHILIPPI NES_X_ CH SINGAP ORE_X_ CHN THAILA ND_X_C HN KOREA_X_CHN MALAYSIA_X_CHN PHILIPPINES_X_CH SINGAPORE_X_CHN THAILAND_X_CHN Asia Table 2: Uni roo es and Co-inegraion A: Uni Roo Tes Variables ADF PP Level 1 s Difference Level 1 s Difference Chnxus ** *** ChnmAsia ** *** B: Co-inegraion Tes Null Hypohesis Eigen value LR Criical Value a 5% level Criical Value a 1% level Ho: r = 0, Vs H1: r <= *** Ho: r = 1, Vs H1: r <= ** Noe: *** and ** indicae he level of significance a 1% and 5%, respecively. 16

18 Table 3: Esimaed Resuls of Vecor Error Correcion Model Coinegraing Eq: CHINA_X_US(-1) ASIA8_X_CHN(-1) C CoinEq *** (-6.33) Error Correcion: D(CHINA_X_US) D(ASIA8_X_CHN) CoinEq *** *** (-3.61) (-3.58) D(CHINA_X_US(-1)) D(CHINA_X_US(-2)) D(CHINA_X_US(-3)) D(ASIA8_X_CHN(-1)) D(ASIA8_X_CHN(-2)) D(ASIA8_X_CHN(-3)) C (1.02) (1.2) 0.349** (2.02) (-0.73) (-0.63) (-0.41) (0.59) 0.929** (2.17) (0.38) (0.35) *** (-3.39) (-0.88) (-0.34) (1.007) R-squared Adj. R-squared Sum sq. resids S.E. equaion Log likelihood Akaike AIC Schwarz SC Mean dependen S.D. dependen Deerminan Residual Covariance Log Likelihood Akaike Informaion Crieria Schwarz Crieria E E E Noe: (i) Figures in parenhesis are - values. (ii) *** and ** indicae he level of significance a 1% and 5%, respecively. 17

19 Fig 2: China expors o US & impors from Asia8 region CHINA_X_US HONGKONG_X_CHN INDONESIA_X_CHN KOREA_X_CHN 2500 MALAYSIA_X_CHN PHILIPPINES_X_CH SINGAPORE_X_CHN TAIWAN_X_CHN THAILAND_X_CHN