{"id":527608,"date":"2010-04-14T11:07:08","date_gmt":"2010-04-14T15:07:08","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/04\/14\/guest-contribution-dani-rodrik-on-chinas-fat-trade-surplus\/"},"modified":"2010-04-14T11:07:08","modified_gmt":"2010-04-14T15:07:08","slug":"guest-contribution-dani-rodrik-on-china%e2%80%99s-fat-trade-surplus","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/527608","title":{"rendered":"Guest Contribution: Dani Rodrik on China\u2019s Fat Trade Surplus"},"content":{"rendered":"

This morning, the International Monetary Fund<\/strong> advised China and other countries with big trade surpluses that they can slash those surpluses without sacrificing economic growth by adopting a toolkit of measures including revaluing their currencies, shifting policies toward domestic consumption and pursuing more sophisticated markets. The IMF report<\/a>, part of its semi-annual World Economic Outlook, frequently cites the work of Harvard economist Dani Rodrik<\/strong> in reaching its conclusion.<\/em><\/p>\n

Here\u0092s Mr. Rodrik\u0092s thoughts, e-mailed to the Wall Street Journal\u0092s Bob Davis:<\/em><\/p>\n

The honest conclusion from this chapter, which is a useful exercise, is not that currency appreciation will not have adverse effects on growth, but that it will not necessarily have adverse effects. Furthermore, many of the findings in the chapter would be cause for concern for China: a negative growth effect is more likely the faster the initial growth, the larger the initial current account surplus, and the higher the initial saving rate. China is an outlier in all these respects.<\/p>\n

In addition, the chapter largely overlooks another important determinant of the appreciation’s impact. The poorer the economy, the more detrimental is a real appreciation likely to be. Almost all of the comparison economies considered here were significantly richer than China at the time of their currency adjustment. The poorest economy in the case studies (Korea in 1989) was between twice and three times richer than China is at present (depending on whether you compare them in regular dollars or PPP dollars).<\/p>\n

This matters because China still has a huge surplus of labor that needs to be absorbed into its modern, mostly tradable, sectors. As the authors document, the tradable sector tends to grow significantly less rapidly following appreciation. This is not good news for an economy at China’s level of development.<\/p>\n

In my own work, which they cite, I actually find that the sensitivity of China’s growth to its exchange rate is quite a bit higher than for other countries at similar income levels. This is possibly because China is so huge and with so much labor still in extremely low productivity activities.<\/p>\n

So the bottom line from this analysis should be “not full speed ahead,” but “caution is warranted.”<\/p>\n

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This morning, the International Monetary Fund advised China and other countries with big trade surpluses that they can slash those surpluses without sacrificing economic growth by adopting a toolkit of measures including revaluing their currencies, shifting policies toward domestic consumption and pursuing more sophisticated markets. The IMF report, part of its semi-annual World Economic Outlook, […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-527608","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/527608","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=527608"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/527608\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=527608"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=527608"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=527608"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}