Influence of systemic banking crisis and currency crisis on the relationship of export and economic growth. Evidence from China
| Pages | 82-110 |
| Date | 06 February 2017 |
| Published date | 06 February 2017 |
| DOI | https://doi.org/10.1108/JCEFTS-04-2016-0012 |
| Author | Syed Ali Raza,Mohd Zaini Abd Karim |
| Subject Matter | Economics,International economics |
Inuence of systemic banking
crisis and currency crisis on the
relationship of export and
economic growth
Evidence from China
Syed Ali Raza
Othman Yeop Abdullah Graduate School of Business,
Universiti Utara Malaysia, Sintok,
Malaysia and Department of Management Sciences, IQRA University,
Karachi, Pakistan, and
Mohd Zaini Abd Karim
Othman Yeop Abdullah Graduate School of Business,
Universiti Utara Malaysia, Sintok, Malaysia
Abstract
Purpose –This study aims to investigate the inuence of systemic banking crises, currency crises and
global nancial crisis on the relationship between export and economic growth in China by using the annual
time series data from the period of 1972 to 2014.
Design/methodology/approach –The Johansen and Jeuuselius’ cointegration, auto regressive
distributed lag bound testing cointegration, Gregory and Hansen’s cointegration and pooled ordinary least
square techniques with error correction model have been used.
Findings –Results indicate the positive and signicant effect of export of goods and services on economic
growth in both long and short run, whereas the negative inuence of systemic banking crises and currency
crises over economic growth is observed. It is also concluded that the impact of export of goods and service on
economic growth becomes insignicant in the presence of systemic banking crises and currency crises. The
currency crises effect the inuence of export on economic growth to a higher extent compared to systemic
banking crises. Surprisingly, the export in the period of global nancial crises has a positive and signicant
inuence over economic growth in China, which conclude that the global nancial crises did not drastically
affect the export-growth nexus.
Originality/value –This paper makes a unique contribution to the literature with reference to China, being
a pioneering attempt to investigate the effects of systemic banking crises and currency crises on the
relationship of export and economic growth by using long-time series data and applying more rigorous
econometric techniques.
Keywords China, Economic growth, Exports, Currency crises, Systemic banking crises
Paper type Research paper
1. Introduction
Economic growth is one of the important factors for a prosperous economy (Shihab et al.,
2014) and an ultimate objective in all economic strategies (Tahir et al., 2015). It is an
extremely complex process which is dependent on various factors such as capital growth
(physical and human both), political conditions, terms of trade, income distribution and
ecological characteristics (Singh and Saeed, 2010;Kumar, 2015). Countries change their
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
JCEFTS
10,1
82
Journalof Chinese Economic and
ForeignTrade Studies
Vol.10 No. 1, 2017
pp.82-110
©Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-04-2016-0012
approaches from time to time to achieve economic growth; however, the most basic approach
which is widely used by them is the export expansion (Myovella et al., 2015).
The role of export in enhancing economic performance gains the attention of many
researchers (Ismail and Harjito, 2009;Shihab et al., 2014;Sahoo et al., 2014), as they consider
it as an engine for the economic growth (Singh and Saeed, 2010;Saleem and Sial, 2015).
Export contributes to the economy in three ways. First, it is a source of foreign exchange
which helps to improve the balance of payments. Second, it acts as a source of job creation;
and third, it helps the country to enjoy the economies of scale and also accelerates the
technology advancement in production (Ismail and Harjito, 2009;Ray, 2011).
Many studies have been done to explore the association between export and economic
growth. Among them, a few studies supported the export-led growth hypothesis, i.e. export
is the cause of economic growth (Tyler, 1980;Chandra Parida and Sahoo, 2007;Trivedi and
Pradhan, 2010). Some studies reported that the growth led export hypothesis, i.e. economic
growth, is the cause of exports (Darrat, 1986;Mallick, 1996). However, some studies reported
that both complement each other (Ekanayake, 1999;Chaudhary et al., 2007). Some studies
reported that no causal relationship exists between exports and economic growth (Hsiao,
1987;Tang, 2006;Pazim et al., 2009).
The global nancial crisis was a great hit on the export and growth relationship for many
economies. The nancial crisis badly affected the cross-border economic activity. According
to the World Trade Organization, the world trade manufacturing in nominal terms declined
by about 30 per cent between the years 2008-2009, and the overall gross domestic product
(GDP) of the world suffered a loss of 5.4 per cent. After the crisis, some countries faced a
sharp decline in their export and imports. The fall in trade inows was remarkably
widespread across industries, whereas it was highly synchronized among Organisation for
Economic Co-operation and Development (OECD) countries (Araujo and Martins, 2009).
Moreover, the major decline was seen in small open economies, as their trade values fell by 30
per cent in 2008.
Two aspects of the nancial crisis cause a decline in international trade. On the producer
side, the credit crunch reduces the external nancing, which in turn reduces the production
and export capacities of the economies. On the consumer side, the depressed economic
environment generally reduces the global demand, and the demand for imports in particular
(Chor and Manova, 2012). Several emerging economies gain economic improvement,
inuencing the economic growth of other countries (Akin and Kose, 2008), and the Chinese
economy is among one of them. Owing to its export expansion and investments in other
developed economies, China has become one of the important sources of growth of the
worldwide countries (Fidrmuc and Korhonen, 2010). Even during the Asian crisis in the late
1990s, the economy did well (Prasad, 2009). From the past three decades, the economy of
China is growing at a rate of 10 per cent annually (Xing and Pradhananga, 2013). According
to the World Bank, real GDP indicator China became the fourth largest economy in 2005
(Schott, 2008). In 2014, it has an annual GDP of $10.35tn, which is around 50 per cent of US
GDP (World Bank Development Indicators).
Over the past 15 years, the real exports of China have increased by more than 500 per cent.
In 2004, China became the third largest export after Germany and USA. The reason behind
this improvement is the transformation in the China export structure in 1992. The export of
China declined in agricultural and soft manufacturing goods; however, the export of
machinery and hard manufacturing goods increased remarkably (Amiti and Freund, 2010).
In 2009, China took over the position of Germany and became the largest exporting nation.
According to the World Bank, in 2011, China’s export of goods and services contribute 25.5
per cent to the economy GDP. In 2012, the exports of China increased by 8 per cent as
83
Systemic
banking crisis
To continue reading
Request your trial