A Study On The Relationship Between Foreign Trade And Economic Growth

With the development of China's economy, the export trade and import trade are both strongly expanding; also the trade growth accelerates economy growth obviously. But along with the rapid economy and trade growth, the difference among the three parts of China: the east, middle and west is becoming more and more great. So it needs investigating whether trade is a factor of the economy development difference.This paper investigates the effect of trade on economic growth in China, based on a two-sector growth model developed by Feder originally. Identifying the variance of the quality of inputs and introducing the difference of factor productivity of these inputs, the paper develops a model, which estimates the gains of trade including exports and imports under a reasonable and applicable analytical framework.The weighted growth rate of imports has a positive effect on economic growth. This finding is not sensitive to the specification of the model and the estimation technique. And trade growth (including exports and imports) increased economic growth through its positive impact on total factor productivity in the economy. The marginal productivity of capital in the export sector is higher than that of non-export sector. Simultaneously, the marginal productivity of capital goods produced domestically is lower than that of imported capital goods. The contribution of trade to economic growth was more pronounced during 1978-2005 when the macroeconomic was stable.Based on the conclusion of this paper, we conclude that trade is a factor of the economy development difference which among the three parts of China: the east, middle and west. The paper suggests the three parts should develop industry adapt to their comparative advantage, optimizing their industry structure, and reduce the difference among the three parts.