Impact of the People’s Republic of China’s Slowdown on the Global Economy

Across the world, researchers and business analysts are closely watching the People’s Republic of China (PRC), especially its recent economic slowdown. Asia and the Pacific region is anxious about the PRC’s slowdown, but the rest of the world has definite reason to worry about the consequences of a slowdown in the world’s second-largest economy. During the last few decades, the PRC has integrated strongly with Asia and also with the rest of the world. We investigate the impact of the PRC’s slowdown on the global economy. If there is a crisis in the PRC, how much does it affect developed and emerging or developing economies? Using a panel data model, we focus on these issues. We consider international linking variables for the period 2000–2012. Evidence based on panel data analysis for six developed countries (G6: United States, United Kingdom, Germany, Japan, Canada, and Australia) and four BRICS countries (G4: Brazil, Russian Federation, India, and South Africa) shows that the impact of the PRC’s slowdown is greater on emerging BRICS nations than on developed economies. The impact of the PRC’s GDP growth shock on the rest of emerging Asia is greater since it has a strong production network in East and Southeast Asia. So, the PRC’s slowdown certainly affects Asia more than developed economies.

WORKING PAPER NO: 784