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Comparison of Macroeconomic Performance
of Selected Asian Countries.
An Econometric Analysis of China Economic Growth
y Implications
and Policy Implications
Hasret Benar Balcioglu
Cyprus International University, Turkey
hbenar@ciu.edu.tr
Kivanç Vural
Texas A&M University, USA
Abstract. This paper compares the key macroeconomics indicators for the
selected countries: China, Malaysia, Indonesia, Korea, Rep. and India and
also makes an econometric analysis for China for the period 1961-2007. These
countries are chosen on the basis of comparability of data and time without
measurement errors. This study also investigates six hypotheses considering
the impact of several key macroeconomic variables such as domestic saving
rate, domestic investment rate, and volatility of savings, volatility of inflation,
growth rate of exports and growth rate of real GNP. By using suitable statisti-
cal and econometric tests, this paper finds that prevailing performance of China
depends on its superior rates of domestic saving and exports. Policies are also
suggested from the differentials between the economic performances of China
and other chosen Asian countries.
Keywords: China; Asian Countries; macroeconomic indicators.
JEL Codes: E01, E21, E22.
REL Codes: 3I, 8E, 8M.
Comparison of Macroeconomic Performance of Selected Asian Countries. An Econometric Analysis of China Economic Growth and Polic
9
Introduction a huge amount of theoretical and emprical
literature argued that there is a positive
It is known that rapid economic growth correlation between economic growth and
and macroeconomic stability are the main exports (Feder, 1983, Jeffrey, Warner,
objectives of development policy. Poor 1995, Mankiw et al. 1992, Levine et al.,
developing countries require more growth 1992).
when compared with the developed ones in The most effective way to increase labor
order to reach the development of the social efficiency and the efficiency in overall is to
and physical infrastructure. follow and adapt the new technologies
Six important factors were suggested by developed all over the world and to canalize
World Bank inquiry made in 1993 to explain investments to high yielding sectors. In this
Theoretical and Applied Economics
fast growth rate achieved by Asian countries. context, making high investment on
These factors are: 1. High domestic saving education and training is vital to catch up
rate, 2. High domestic investment rate, 3. and practice new technologies on
Provision of competitive market, 4. High production, transportation and on all other
export share in GNP and growth policies branches of economy. Also provision of
encouraging exports, 5. Canalizing competitive market in which price and
investments to high yielding sectors and quality are determined by market forces is a
adapting new technologies in domestic key factor to obtain an outstanding economic
industries, and 6.High investment on development and growth rate.
education and training. In this study, six hypotheses will be
The factors above are the major examined below for Chinese economy
characteristics of Asian countries (China, regarding the annual data for the period
Malaysia, Indonesia, Korea, Rep. and India) 1961-2007.
that achieved high growth rates in the former H1-Higher domestic saving rate affects
recent years. growth rate of real GNP, H2-Higher
Since domestic investment rate is domestic investment rate affects growth rate
determined by domestic savings, a countrys of real GNP, H3-Higher growth rate of
investment level definitely depends on exports affects growth rate of real GNP, H4-
saving rate (Warman, Thirlwall, 1994). Higher volatility of export growth affects
Therefore these two factors move in the growth rate of real GNP, H5-Higher volatility
same direction and affect economic growth of saving affects growth rate of real GNP,
positively. While encouraging the firms and H6-Higher volatility of inflation rate
which produce exportable goods is an affects growth rate of real GNP.
advantage in the sense of giving them The next divisions of the study are
chance to serve a market of unlimited devoted to the comparison of key
consumers, however it introduces a strong macroeconomic indicators for China and
competition of multinational firms and selected Asian countries, methodological
forces domestic firms to be cost efficient structuration, results, conclusions and
and to increase overall efficiency. There is policy issues.
10
Comparison of key macroeconomic Since we dont have the data between
indicators for China and selected 1961-1982, we may have a limited but still
Asian countries reliable analyze. China has the lowest inflation
rate between 1997-2007 among chosen five
We will analyze the growth performance countries.
of China compared to some other Asian
developing countries performance regarding
The share of exports in GNP y Implications
the data of some important economic
indicators between 1961 and 2007. (Average annual percentage change)
Table 3
1961- 1968- 1976- 1983- 1990- 1997- 2004-
Growth performance of China and chosen 1967 1975 1982 1989 1996 2003 2007
China 1.85 2.57 8.85 13.42 22 20.14 35
Asian countries Malaysia 39.76 40.57 51.14 58.85 83.28 114 123
Indonesia 17.23 18.42 27.42 27 26.42 36.85 42
South 19.45 20.57 30.57 34.14 28 38.42 46
Table 1 Korea
India 1.92 2.75 9.68 14.02 23.01 22.25 38
1961- 1968- 1976- 1983- 1990- 1997- 2004-
1967 1975 1982 1989 1996 2003 2007 Source:World Development Indicators
China 7.52 9.42 6.85 10.85 10.71 8.57 12.96
Malaysia 5.74 6.71 8.00 5.42 9.57 3.57 4.21 Database 2008.
Indonesia 6.21 7.71 7.00 6.28 8.00 1.57 2.62
South 7.12 8.42 7.00 9.42 6.85 4.14 5.23
Korea
India 3.60 5.62 6.71 5.52 7.02 6.41 7.23
Source:World Development Indicators Table 3 indicates that China has a lower
Database 2008. export share in GNP in overall compared to
the other given countries.
From Table 1, we can see that China has
a prevailing growth performance compared Investment share of GNP
with Malaysia, Indonesia, South Korea and (In percentage terms)
India between 1961-2007. The interval Table 4
between 1976-1982 is the only period in 1961- 1968- 1976- 1983- 1990- 1997- 2004-
1967 1975 1982 1989 1996 2003 2007
which China has a lower performance China 23.21 24.37 25.77 22.67 26.58 28.91 35
Malaysia 12.36 15.69 20.36 20.36 28.04 21.02 24.36
Indonesia 7.56 9.83 12.61 19.05 18.73 12.74 25.23
relative to other selected countries except South 17.56 20.44 29.43 32.39 41.72 34.23 36.21
Korea
India. India 8.26 9.15 10.25 11,56 10.23 8.56 18.98
Source: World Development Indicators
Inflation Rate
Database 2008.
(Average annual percentage change in
consumer price index) Although the investment share of GNP
Table 2 changes in each time period, China still has a
1961- 1968- 1976- 1983- 1990- 1997- 2004- consistent trend on the investment share of GNP
1967 1975 1982 1989 1996 2003 2007
China - - - 14.66 11.71 0.14 1.20
Malaysia 6.21 5.57 5.48 2.14 3.71 2.42 3.21 since the share of investment in GNP varies
Indonesia 19.32 18.57 13.42 8.00 8.71 17.00 18.25 between 24% and 35% in the given 45 years
South 16.42 15.14 16.28 3.71 6.28 3.71 4.21
Korea time period. Although it is not put in a table,
India 7.85 6.25 6.12 5.76 6.70 5.40 5.77
Source: World Development Indicators the saving rate of China is also consistent and
Database 2008. higher than the concerned countries.
Comparison of Macroeconomic Performance of Selected Asian Countries. An Econometric Analysis of China Economic Growth and Polic
11
Methodological structuration integrated variables can be accepted as co-
integrated variables (Enders, 1995). In order
Since the annual data of China covering to find any long run relationship between the
the period of 1961-2007 are used, the variables, cointegration between the
Augmented Dickey-Fuller (ADF) and variables should be tested after the decision
Phillips-Perron (PP) unit root tests are of the order of integration. In this paper
employed in order to test the integration level Johansen trace test is used as the co-
and the possible co-integration among the integration test. Cheung and Lai (1993)
variables (Dickey, Fuller, 1981, Phillips, points out that the trace test for co-integration
Perron, 1988). The PP is an alternative test is more robust than the maximum eigen
to ADF unit root test and it calculates a value test. It is known that Johansen trace
Theoretical and Applied Economics
residual variance that is robust to auto- test decides the number of co-integrating
correlation. The researcher should always vectors among variables. At least one co-
ask himself a question while analyzing integrating vector should be present for a
whether it is most appropriate to include possible co-integration. Emprical studies
constant term and trend factor in the unit root have indicated that the presence of non-
process (Enders, 1995). It might be more stationarity in the time series can cause
reasonable to test the existence of a unit root spurious regression results and the
in the series with the most general model. conclusions obtained from Granger causality
The Akaike Information Criteria (AIC) is can be invalidated. Toda and Phillips (1993)
used to choose the number of lags in the have mentioned about the necessary
dependent variable in order to ensure that methods to deal with Granger causality for
the errors are white noise. The power of the the systems of integrated of one. The
test and the degrees of freedom might be presence of a co-integrating relation creates
reduced with the presence of additional the basis of the vector error correction
estimated parameters. If the researcher fails specification. Standard Granger or Sims tests
to reject the null hypothesis of a unit root may show invalid casual information with
because of misspecification concerning the the omission of error correction terms from
deterministic part of the regression, Doldado the tests (Doyle, 2001).
et al. (1990) advises to use the most general
model to test for a unit root when he is faced Results
with the form of unknown data generating
process. It is known that the power of the Table 5 presents ADF and PP test results
test even goes to zero if the intercept or time for unit root. It shows that all the variables
trend is inappropriately omitted (Campbell, are integrated of order one and the first
Perron, 1991). Enders (1995) points out that differences of lnGNP, lnDomesticSaving,
reduced power can misguide the researcher lnDomesticInvestment, lnExport and
leading to wrong decision. If the variables lnInflation are stationary for this sample in
are stationary, a linear combination of China.
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