Making Room for China in the World Economy

By Dani Rodrik. 2010

131 citations recorded by the source corpus.

As it comes out of the crisis, the world econ omy faces two apparently conflicting demands. On the one hand, achieving global macroeco nomic stability and preventing a protectionist backlash will require that we avoid large current account imbalances of the type that the world economy experienced in the run-up to the cri sis. On the other hand, returning to rapid growth in the developing nations will require that they resume their conquest of global market share in tradable goods. The challenge of meeting both demands is epitomized by the contentious US-China bilat eral relationship. American (and European) policy makers blame China for an undervalued renminbi, which they argue is the root cause of China's huge trade surplus. Chinese leaders resist the pressure, fearing that appreciation will undercut the competitiveness of Chinese goods in world markets, hurt exports, and damage growth. The Western answer to this concern is that China needs to replace foreign demand with domestic demand as the engine of growth. But if growth depends primarily on the sup ply of modern manufactured products and other tradables as opposed to services and non-trad ables, as I will argue here, the Chinese position has more force than critics give it credit. The conventional fix for China's current account surplus, consisting of a combination of expendi ture expansion and currency appreciation, will shift the structure of the economy away from tradables and towards non-tradables. This may be good for macroeconomic balance in China and elsewhere, but it will almost certainly have adverse effects on China's growth?perhaps large enough even to endanger the country's social and political stability.

Subfields: Development, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/38f0552e3104e1eee56e9cd740df293863c679d4

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Citations in the corpus

The future of economic convergence (2011, background): “When China eventually joined the WTO, the country did not stop promoting its industries, but shifted from trade and direct industrial policies (now banned by international rules) to currency undervaluation (Rodrik 2008a, 2010a).”
The relationship between exchange rates and international trade: a literature review (2013, background): “Specifically, one would argue that such long-run effects 16However, Rodrik (2010) finds that neither exports nor trade surpluses are key determinants of economic performance when the growth of the tradable sector is included in the regressions.”