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Hangzhou Institute of Commerce of Zhejiang Technology and Business University, Hangzhou Zhejiang 310000
Abstract. Based on the statistical data of Shanghai, the paper makes empirical research on the relationship between foreign trade and economic growth. The research results indicate that there is long-term dynamic and equilibrium relationship between foreign trade and economic growth, and the economic growth is the Granger cause of trade import. Since 1979, rapid growth of economy motivates the expansion of trade import, but the pulling effect of import on economic growth is not evident. In addition, trade import promotes economic growth in the long run. But we can see that from the economic data in Shanghai that the promotion has not become the source motivate force of growth for trade export.
Keywords: foreign trade, economic growth, empirical analysis.
1. Introduction
Economic growth not only is the popular topic of economic research, but also is the primary goal which is pursued by macro-economy policy in a country. For the concern and consideration on trade, the economists not only focus on foreign trade, but also concern the function of foreign trade on national economy. Therefore, the relationship between foreign trade and economic growth is the important research topic of scholars at home and abroad, and is one of the academic focus issues. The reform and opening promotes the opening up in our country greatly, which makes the integration of our country and world economy deep. As the pioneer of reform and opening up and foreign trade, Shanghai actively participates in international division of labor. Foreign trade develops prosperously. Especially after China joins WTO, the trade scale in Shanghai expands, and the trade dependence keeps rising.
The paper uses the method combining qualitative analysis and quantitative analysis to make empirical analysis on the relationship between economic growth and foreign trade in Shanghai.
2. Analysis on Correlation of Foreign Trade and Economic Operation
Relationship between economic growth and foreign trade
The tendency chart of net exports and GDP growth in Shanghai is made for comparative analysis. And we find that the growth trend of them is not identical. From 1978 to 1992, the growth curve of net exports and gross domestic product in Shanghai is steady and identical. But from 1992 to 2004, the trend of them is not identical, and GDP rises rapidly. But net exports kept stable before 2000, and presented the deficit, which is opposite to GDP growth direction. Since 2004, the curve trend of both is identical. It indicates that there is no close correlation between net exports and GDP in Shanghai, which doesn't mean the more the net exports, the greater the promotion effect on economy. Analysis on trade dependence
Foreign trade dependence is a system including foreign trade dependence, export dependence and import dependence. And the relationship of them is analyzed in the chapter. The export trade dependency is the proportion of the total export trade value and the total import trade value to GDP. The calculation formula is as follows.
Foreign trade dependency =total import and export／GDP×100％ （1）
Export dependency =total export／GDP×l00％ （2）
Import dependency =total import／GDP×100％。 （3）
According to the average exchange rate in every year, the foreign trade data from 1978 to 2008 in Shanghai is converted to RMB. From the calculation of foreign trade dependency, import dependency and export dependency, we can see that the foreign trade dependency of Shanghai kept rising since the reform and opening up. The foreign-trade dependency in 1978 was only 19.52%, but reached to 176.53% in 2007, which increases by seven times. The growth rate of import dependency is higher than the export dependency. Especially the import dependency from 1999 t0 2006 was greater than export dependency. Foreign trade has adverse balance.
Elastic analysis on foreign trade
GDP growth elasticity of foreign trade is one of the important indicators measuring the contribution of import and export to regional economic growth.
GDP growth elasticity of import = import growth rate /GDP growth rate （4）
GDP growth elasticity of export =export growth rate /GDPGDP growth rate （5）
From the calculation, we can get that from 1979 to 2008, the import GDP elasticity of Shanghai was greater than 1. GDP growth elasticity of export was greater than 1 in 15 years. And the import and export promoted economic growth in these years. GDP elasticity of import in 1979, 1981 and 1983 was 10.54, 10.4 and 16.2, which indicates that the import had evident promotion effect on economic growth in Shanghai in three years. The influence of import on economy was not evident in 9 years. The financial crisis of Asia in 1997 and global economic crisis in 2008 has negative influence on GDP growth elasticity. It indicates that the change of macro-economic conditions hinders economic growth.
3. Co-integration Analysis on Relationship between Foreign Trade and Economic Growth
3.1 Variable selection and data processing
The paper selects the total import and export in every year as the foreign trade, and selects macro-economic indicator GDP as the economic growth level. Quantitative analysis on three variables is used to research the correlation between foreign trade and economic growth in Shanghai since the reform and opening up. Therefore, the selected variables for the model are GDP, IM and EX. The data used in the paper is from Shanghai Statistical Yearbook and China Statistical Yearbook, and the sample data is selected from the annual data from 1978 to 2008. EVIEWS5.0 is used to make correlation test on three variables, and the results are shown in Table 1. The test results indicate that there is great correlation coefficient among LNGDP, LNEX and LNIM, and the correlation coefficient between LNEX and LNGDP was greater than that between LNIM and LNGDP, which indicates that the relationship between import and economic growth is closer.
Table 1 Correlation coefficients of variables
3.2 Stationary test of variables
Analyzing economic variables requires that the researched time sequence should have no stochastic trend or certainty, which means that the statistical regularity of time sequence doesn't change with the displacement of time. Non-stationary series may have spurious regression, which makes the model can't really reflect the relationship between explanatory variables and explained variables. Therefore, before stationary test, the sample variables should receive stationary test. The paper selects the common method testing stability of time series, Augmen -ted Dickey—Fuller （ADF）unit root method.
In order to make the generated random series more stationary, the variables receive difference to eliminate the trend. The results of ADF stationary test on LNGDP, LNEX and LNIM by using EVIEWS 5.0 software are shown as follows.
ADF test results1 indicate that the original logarithm sequences, LNIM, LNEX and LNGDP, are not steady under the significance level of 10%. After the first-order difference on the original series, LNEX series is stationary under the significance level of 5%, and LNIM series is stationary under the significance level of 10%. And LNGDP series is still not steady after the first-order difference. All sequences continue to receive the second order difference, and the test results indicate that the second-order difference of all logarithm sequences is stationary under the significance level of 1%. The test results indicate that LNEX and LNIM is the first-order integrated series, LNEX ～I（1）and LNIM～I（1）. LNGDP is the process of I (2), and is the second-order integrated series. It means that the variable series of GDP, imports and exports in Shanghai are not stationary after logarithm, and the imports and exports become stationary sequences after the first-order difference. And GDP becomes stationary series after the second-order difference. The imports, exports and GDP in Shanghai receives co-integration test to judge if there is dynamic and balanced relationship between variables. 3.3 Co-integration test
The paper selects Johansen multi-variable system maximum likelihood estimation method for co-integration test on variables. The method can test more than one co-integration vectors, and allows that the elements of vectors have different orders. ADF test in the above chapter shows that LNGDP is the second-order integrated series, and LNEX and LNIM is the first-order integrated series. Therefore, Johansen co-integration method can be used to test co-integration relationship between GDP and import and export series in Shanghai.
From ADF test, we can see that LNGDP, LNIM and LNEX have linear tendency and constant term. So the selected co-integration equation includes tendency and constant term. EVIEWS 5.0 software is used for co-integration test on variables, and the results are shown in Table 3.
From Table 3, we can see that there is no co-integration relationship between GDP and exports in Shanghai, and between GDP and imports. But here is co-integration equation among them. It indicates that the original series of GDP, imports and exports in Shanghai is not stationary. But the test results of LNGDP, LNIM and LNEX indicate that there is long-term balanced relationship among them, which indicates that import and export may influence the development of GDP in Shanghai, and there is dynamic and balanced relationship among them.
3.4 GRANGER causality test
Granger test aims at the causality of economic variables. The principle is to use the time difference and lag effect that economic relationship plays the role to judge the existence and direction of causality according to significance degree of the explanation and influence of antecedent indexes of economic variables. Ganger test requires that series must be stationary, so the paper selects the second-order difference of the original logarithm sequence for test. According to AIC, we determine that the optimal lagged difference of each variable is 2. The test results are shown in the following table.
The test indicates that under the significance level of 10%, there is single causality between GDP and import, LNGDP is Granger reason of LNIM, but LNGDP is not Granger reason of LNIM, LNEX is Granger reason of LNGDP, and there is no causality between them. There is no mutual causality between LNIM and LNEX. It indicates that there is single causality between economic growth and import in Shanghai. Economic growth promotes the foreign trade import, but foreign-trade import doesn't promote the economic growth in Shanghai. Economic growth is not the reason of Shanghai export, but foreign-trade export has active effect on promoting economic growth since the reform and opening up, which is identical with the status in Shanghai. 4. Conclusions and Evaluation
From the co-integration test and Granger causality test results, we can get the following conclusions.
4.1 There is long-term stable relationship between Shanghai import and export and economic growth
There is greater correlation between Shanghai GDP growth and import and export. The test results indicate that the growth of Shanghai GDP, imports and exports is not stationary, but the linear combination of them is stationary, and there is unique co-integration equation among three variables. It indicates that there is long-term stable and dynamic equilibrium relationship between foreign trade and economic growth in Shanghai, and there is intrinsic steady mechanism among them.
4.2 The export in Shanghai promotes economic growth, and the pulling effect of import on economy needs to be enhanced. The test results indicate that the economic growth in Shanghai is the reason of import. Rapid development of economy has great promotion effect on economic growth in Shanghai since the reform and opening up, and the promotion effect of import on economy is not evident. The promotion effect of GDP growth in Shanghai on import is very obvious, the motivation of economic development on the total requirements includes the requirements of foreign products, service and materials, which motivates the increase of import. But the expansion of import has no active function on economic growth, the reason for which is that the proportion of materials to Shanghai import products is greater, and the proportion for technical products is low.
4.3 Enhancing the guidance on import and export to promote economic growth
The test results indicate that export is the reason of economic growth in Shanghai, but the pulling effect of export on economic growth needs to be enhanced. The export scale in Shanghai has been expanded and the structure has been optimized since the reform and opening up, but there are still many problems. For example, the export still remains in the extensive development stage with growth in number, the export products lack of brand, export market is too concentrated, and there is no good leading role on industrial upgrading in the region. Therefore, the increase of quantity should be converted to the promotion of quality for the export, and the promotion effect of export on economy should be fully played.
On the other hand, the rest results indicate that import is not the reason of economic growth in Shanghai, but the promotion effect of import on economic growth has not been played. But only stressing export and ignoring import is not advisable. While attaching importance to export, we should excavate the positive effect of import to realize benign interaction of foreign trade and economic growth in Shanghai. References
[1] Astrid Kander,Magnus Lindmark. Foreign trade and declining pollution in Sweden: a decomposition analysis of long-term structural and technological effects[J]. Energy Policy,2005,3413.
[2] Doron Lavee,Gilat Beniad,Moran Moshe-Jantzis. Israel's foreign trade policy: The benefits of its reform[J]. Journal of Policy Modeling,2012,.
[3] Marcel Kohler. CO 2 emissions, energy consumption, income and foreign trade: A South African perspective[J]. Energy Policy,2013,63.
[4] Rajeshwar Sirpal. An empirical comparative analysis of various issues of foreign trade among firms in South-East Asian countries[J]. The Journal of Risk Finance,2011,125.
[5] Xilin Li. Technology, factor endowments, and China's agricultural foreign trade: a neoclassical approach[J]. China Agricultural Economic Review,2012,41.
[6] Belay Seyoum,Juan Ramirez. Foreign trade zones in the United States: A study with special emphasis on the proposal for trade agreement parity[J]. Journal of Economic Studies,2012,391.
[7] Xiaoyin Wang,Zhongwen Chen,Yuhong Li. An Empirical Study on the Contribution of Foreign Trade to the Economic Growth of Jiangxi Province, China[J]. iBusiness,2010,0202.
Abstract. Based on the statistical data of Shanghai, the paper makes empirical research on the relationship between foreign trade and economic growth. The research results indicate that there is long-term dynamic and equilibrium relationship between foreign trade and economic growth, and the economic growth is the Granger cause of trade import. Since 1979, rapid growth of economy motivates the expansion of trade import, but the pulling effect of import on economic growth is not evident. In addition, trade import promotes economic growth in the long run. But we can see that from the economic data in Shanghai that the promotion has not become the source motivate force of growth for trade export.
Keywords: foreign trade, economic growth, empirical analysis.
1. Introduction
Economic growth not only is the popular topic of economic research, but also is the primary goal which is pursued by macro-economy policy in a country. For the concern and consideration on trade, the economists not only focus on foreign trade, but also concern the function of foreign trade on national economy. Therefore, the relationship between foreign trade and economic growth is the important research topic of scholars at home and abroad, and is one of the academic focus issues. The reform and opening promotes the opening up in our country greatly, which makes the integration of our country and world economy deep. As the pioneer of reform and opening up and foreign trade, Shanghai actively participates in international division of labor. Foreign trade develops prosperously. Especially after China joins WTO, the trade scale in Shanghai expands, and the trade dependence keeps rising.
The paper uses the method combining qualitative analysis and quantitative analysis to make empirical analysis on the relationship between economic growth and foreign trade in Shanghai.
2. Analysis on Correlation of Foreign Trade and Economic Operation
Relationship between economic growth and foreign trade
The tendency chart of net exports and GDP growth in Shanghai is made for comparative analysis. And we find that the growth trend of them is not identical. From 1978 to 1992, the growth curve of net exports and gross domestic product in Shanghai is steady and identical. But from 1992 to 2004, the trend of them is not identical, and GDP rises rapidly. But net exports kept stable before 2000, and presented the deficit, which is opposite to GDP growth direction. Since 2004, the curve trend of both is identical. It indicates that there is no close correlation between net exports and GDP in Shanghai, which doesn't mean the more the net exports, the greater the promotion effect on economy. Analysis on trade dependence
Foreign trade dependence is a system including foreign trade dependence, export dependence and import dependence. And the relationship of them is analyzed in the chapter. The export trade dependency is the proportion of the total export trade value and the total import trade value to GDP. The calculation formula is as follows.
Foreign trade dependency =total import and export／GDP×100％ （1）
Export dependency =total export／GDP×l00％ （2）
Import dependency =total import／GDP×100％。 （3）
According to the average exchange rate in every year, the foreign trade data from 1978 to 2008 in Shanghai is converted to RMB. From the calculation of foreign trade dependency, import dependency and export dependency, we can see that the foreign trade dependency of Shanghai kept rising since the reform and opening up. The foreign-trade dependency in 1978 was only 19.52%, but reached to 176.53% in 2007, which increases by seven times. The growth rate of import dependency is higher than the export dependency. Especially the import dependency from 1999 t0 2006 was greater than export dependency. Foreign trade has adverse balance.
Elastic analysis on foreign trade
GDP growth elasticity of foreign trade is one of the important indicators measuring the contribution of import and export to regional economic growth.
GDP growth elasticity of import = import growth rate /GDP growth rate （4）
GDP growth elasticity of export =export growth rate /GDPGDP growth rate （5）
From the calculation, we can get that from 1979 to 2008, the import GDP elasticity of Shanghai was greater than 1. GDP growth elasticity of export was greater than 1 in 15 years. And the import and export promoted economic growth in these years. GDP elasticity of import in 1979, 1981 and 1983 was 10.54, 10.4 and 16.2, which indicates that the import had evident promotion effect on economic growth in Shanghai in three years. The influence of import on economy was not evident in 9 years. The financial crisis of Asia in 1997 and global economic crisis in 2008 has negative influence on GDP growth elasticity. It indicates that the change of macro-economic conditions hinders economic growth.
3. Co-integration Analysis on Relationship between Foreign Trade and Economic Growth
3.1 Variable selection and data processing
The paper selects the total import and export in every year as the foreign trade, and selects macro-economic indicator GDP as the economic growth level. Quantitative analysis on three variables is used to research the correlation between foreign trade and economic growth in Shanghai since the reform and opening up. Therefore, the selected variables for the model are GDP, IM and EX. The data used in the paper is from Shanghai Statistical Yearbook and China Statistical Yearbook, and the sample data is selected from the annual data from 1978 to 2008. EVIEWS5.0 is used to make correlation test on three variables, and the results are shown in Table 1. The test results indicate that there is great correlation coefficient among LNGDP, LNEX and LNIM, and the correlation coefficient between LNEX and LNGDP was greater than that between LNIM and LNGDP, which indicates that the relationship between import and economic growth is closer.
Table 1 Correlation coefficients of variables
3.2 Stationary test of variables
Analyzing economic variables requires that the researched time sequence should have no stochastic trend or certainty, which means that the statistical regularity of time sequence doesn't change with the displacement of time. Non-stationary series may have spurious regression, which makes the model can't really reflect the relationship between explanatory variables and explained variables. Therefore, before stationary test, the sample variables should receive stationary test. The paper selects the common method testing stability of time series, Augmen -ted Dickey—Fuller （ADF）unit root method.
In order to make the generated random series more stationary, the variables receive difference to eliminate the trend. The results of ADF stationary test on LNGDP, LNEX and LNIM by using EVIEWS 5.0 software are shown as follows.
ADF test results1 indicate that the original logarithm sequences, LNIM, LNEX and LNGDP, are not steady under the significance level of 10%. After the first-order difference on the original series, LNEX series is stationary under the significance level of 5%, and LNIM series is stationary under the significance level of 10%. And LNGDP series is still not steady after the first-order difference. All sequences continue to receive the second order difference, and the test results indicate that the second-order difference of all logarithm sequences is stationary under the significance level of 1%. The test results indicate that LNEX and LNIM is the first-order integrated series, LNEX ～I（1）and LNIM～I（1）. LNGDP is the process of I (2), and is the second-order integrated series. It means that the variable series of GDP, imports and exports in Shanghai are not stationary after logarithm, and the imports and exports become stationary sequences after the first-order difference. And GDP becomes stationary series after the second-order difference. The imports, exports and GDP in Shanghai receives co-integration test to judge if there is dynamic and balanced relationship between variables. 3.3 Co-integration test
The paper selects Johansen multi-variable system maximum likelihood estimation method for co-integration test on variables. The method can test more than one co-integration vectors, and allows that the elements of vectors have different orders. ADF test in the above chapter shows that LNGDP is the second-order integrated series, and LNEX and LNIM is the first-order integrated series. Therefore, Johansen co-integration method can be used to test co-integration relationship between GDP and import and export series in Shanghai.
From ADF test, we can see that LNGDP, LNIM and LNEX have linear tendency and constant term. So the selected co-integration equation includes tendency and constant term. EVIEWS 5.0 software is used for co-integration test on variables, and the results are shown in Table 3.
From Table 3, we can see that there is no co-integration relationship between GDP and exports in Shanghai, and between GDP and imports. But here is co-integration equation among them. It indicates that the original series of GDP, imports and exports in Shanghai is not stationary. But the test results of LNGDP, LNIM and LNEX indicate that there is long-term balanced relationship among them, which indicates that import and export may influence the development of GDP in Shanghai, and there is dynamic and balanced relationship among them.
3.4 GRANGER causality test
Granger test aims at the causality of economic variables. The principle is to use the time difference and lag effect that economic relationship plays the role to judge the existence and direction of causality according to significance degree of the explanation and influence of antecedent indexes of economic variables. Ganger test requires that series must be stationary, so the paper selects the second-order difference of the original logarithm sequence for test. According to AIC, we determine that the optimal lagged difference of each variable is 2. The test results are shown in the following table.
The test indicates that under the significance level of 10%, there is single causality between GDP and import, LNGDP is Granger reason of LNIM, but LNGDP is not Granger reason of LNIM, LNEX is Granger reason of LNGDP, and there is no causality between them. There is no mutual causality between LNIM and LNEX. It indicates that there is single causality between economic growth and import in Shanghai. Economic growth promotes the foreign trade import, but foreign-trade import doesn't promote the economic growth in Shanghai. Economic growth is not the reason of Shanghai export, but foreign-trade export has active effect on promoting economic growth since the reform and opening up, which is identical with the status in Shanghai. 4. Conclusions and Evaluation
From the co-integration test and Granger causality test results, we can get the following conclusions.
4.1 There is long-term stable relationship between Shanghai import and export and economic growth
There is greater correlation between Shanghai GDP growth and import and export. The test results indicate that the growth of Shanghai GDP, imports and exports is not stationary, but the linear combination of them is stationary, and there is unique co-integration equation among three variables. It indicates that there is long-term stable and dynamic equilibrium relationship between foreign trade and economic growth in Shanghai, and there is intrinsic steady mechanism among them.
4.2 The export in Shanghai promotes economic growth, and the pulling effect of import on economy needs to be enhanced. The test results indicate that the economic growth in Shanghai is the reason of import. Rapid development of economy has great promotion effect on economic growth in Shanghai since the reform and opening up, and the promotion effect of import on economy is not evident. The promotion effect of GDP growth in Shanghai on import is very obvious, the motivation of economic development on the total requirements includes the requirements of foreign products, service and materials, which motivates the increase of import. But the expansion of import has no active function on economic growth, the reason for which is that the proportion of materials to Shanghai import products is greater, and the proportion for technical products is low.
4.3 Enhancing the guidance on import and export to promote economic growth
The test results indicate that export is the reason of economic growth in Shanghai, but the pulling effect of export on economic growth needs to be enhanced. The export scale in Shanghai has been expanded and the structure has been optimized since the reform and opening up, but there are still many problems. For example, the export still remains in the extensive development stage with growth in number, the export products lack of brand, export market is too concentrated, and there is no good leading role on industrial upgrading in the region. Therefore, the increase of quantity should be converted to the promotion of quality for the export, and the promotion effect of export on economy should be fully played.
On the other hand, the rest results indicate that import is not the reason of economic growth in Shanghai, but the promotion effect of import on economic growth has not been played. But only stressing export and ignoring import is not advisable. While attaching importance to export, we should excavate the positive effect of import to realize benign interaction of foreign trade and economic growth in Shanghai. References
[1] Astrid Kander,Magnus Lindmark. Foreign trade and declining pollution in Sweden: a decomposition analysis of long-term structural and technological effects[J]. Energy Policy,2005,3413.
[2] Doron Lavee,Gilat Beniad,Moran Moshe-Jantzis. Israel's foreign trade policy: The benefits of its reform[J]. Journal of Policy Modeling,2012,.
[3] Marcel Kohler. CO 2 emissions, energy consumption, income and foreign trade: A South African perspective[J]. Energy Policy,2013,63.
[4] Rajeshwar Sirpal. An empirical comparative analysis of various issues of foreign trade among firms in South-East Asian countries[J]. The Journal of Risk Finance,2011,125.
[5] Xilin Li. Technology, factor endowments, and China's agricultural foreign trade: a neoclassical approach[J]. China Agricultural Economic Review,2012,41.
[6] Belay Seyoum,Juan Ramirez. Foreign trade zones in the United States: A study with special emphasis on the proposal for trade agreement parity[J]. Journal of Economic Studies,2012,391.
[7] Xiaoyin Wang,Zhongwen Chen,Yuhong Li. An Empirical Study on the Contribution of Foreign Trade to the Economic Growth of Jiangxi Province, China[J]. iBusiness,2010,0202.