The Analysis Of The Impact Of Foreign Trade To China's Business Cycle

Not only domestic factors influence our country's economic development, demand and supply from foreign countries also have some impact to a certain extent since the reform and opening-up policy in 1978.The rapid development of foreign trade made our country's economic development level higher and the degree of opening to the outside world wider. The economy is becoming more and more close with the world economy. At the same time, the influence from foreign factors is becoming more and more important. Foreign trade can widen our country's product market, accelerate the process of upgrading the industry structure. On the other hand, trade also bring some negative effect as foreign economic fluctuations can bring some impact on our country's economy through the channels of price, demand overflow etc. Because of these factors, our country's economy will influenced by the international economic situation. China must pay attention to the outside shock's impact on domestic economic development when enjoying the benefit of internationalization.In the opening economic systems, every economic variable has two sides effects which are accelerated and restrained functions on other variables. These two forces are disequilibrated at most times, their strength depend on the conditions of other variables and also change with other factors. The effects of exports and imports on the business cycle are depending on the compare relationships of their accelerated and restrained effects on the economy. Exports and imports have different impacts on the fluctuation of business cycle when the country's economy is depressed or flourishing.This paper made two demonstrations of impacts of foreign trade on our country's business cycle , results of the first linearity regression analysis showed that: the growth of our country's exports have a positive impact on the GDP growth. When it was on the decline cycle, undoubtedly, exports can restrain the recession effectively. But when it was on the boom cycle, exports can make the economic become more overheating. The imports from other countries had no significant effect on the domestic economy. The second dynamic analysis used the 1976-2007 macroeconomic data of our country, establishing the structure vector autoregression model(SVAR). Impulse response and variance decomposition results show that China's economy has a good self-stabilization mechanism and output have a little feedback of itself; Most of the economic cycle can get an explanation from foreign trade; Imports have a indecisive effect while exports have a positive impact on the grow of our country's economy. But exports also play an extremely important role in the fluctuation of the economy.