Trade Intensity And Business Cycle Co-movements: An Empirical Study On The Case Of China With Other East Asian Economies

In recent years, trade ties between China and the East Asian countries and regions are getting more and more strengthened. The trade volume between them increased rapidly. In 2007, the bilateral trade volume of China-ASEAN reached 202.55 billion US dollars; China has become the largest export market of South Korea, the second-largest export market of Japan, and the fourth largest export market of Indonesia, Singapore, Philippines and Malaysia.At the same time, the currency integration of the East Asian has developed continuously. The "Chiang Mai Initiative" signed by China, Japan, South Korea and the 10 ASEAN countries in 2000 marks that the Asian financial cooperation has entered a substantive stage. After this, channels of policy dialogue and coordination which has been regularized have increased.At the same time, the major countries of East Asia have signed a series of bilateral or unilateral currency swap agreement. In May 2007, ASEAN10 +3 finance ministers have also made the multilateral working group proposal (the construction of the reserve pool) publicly known.On one hand, the trade ties and the East Asian currency integration developed increasingly. On the other hand, since the beginning of 2008, with the US'own economic downturn caused by the subprime loans crisis extended continuously, the global economy has also been severely affected. And as a rising "trading country ", China is bearing the pressures of the" double defenses ", the appreciation of RMB and the further opening of the financial market. Thus, for China, facing the test of the complex domestic and international economic conditions, to develop the currency intensity of the East Asian more deeply has becoming an important and urgent issue. In such circumstances, the study of the two most important criteria of the optimal currency areas, say the degree of liberalization of trade criteria and macroeconomic fluctuations synchronization criteria, will help China to make decisions on issues relating to the currency intensity of the east Asian. This article includes the introduction and three chapters of the main content.In the introduction, the background and significance of the issues discussed in the article has been cleared firstly. And then we sort out the former researches and analysis and the results on the issue systematically. And then the organization and the structure of this article are illustrated. And at last the innovation and the shortage of the article are pointed out.The first chapter includes three parts: the first part briefs the Theory of Optimum Currency Areas and its criteria issues, which is the foundation of the discussion of relationship of trade intensity and business cycle comovement.The second part discussed the endogenous issues of the criteria, which has caused the academia to start to concern the relationship of the trade intensity and business cycle comovement in an empirical perspective. At last, in the third part, the development of this issue has been revealed, and also its essence which is that the study of this relationship needs to specialize the objects first and then carrying out the analysis with a suitable empirical method.The second chapter is the empirical analysis, including two parts. The first part illustrates the model data: This article selects 9 countries including China and regions in East Asia, and 19 annual data as samples. For the variables, Gross Domestic Production and per capita Consumer Price Index have been selected as the proxy of the business cycle comovement; the trade intensity adopts the bilateral trade intensity index put forward by Frankel and Rose (1998); the intra-industry trade adopts the method of Grubel and Lloyd (1975). And then, graphics and tables on the issue have been given as a preliminary analysis. The second part gives the econometric model, and then made the empirical test on the relationship of trade intensity and business cycle comovement for China and the East Asian economies.The third chapter is mainly empirical testing conclusions, including two parts. The first part is the further interpretation of the empirical results, focusing on three issues: first, the reason for the deferent result desire level using different methods is that after the introduction of the policy factors, the possible explanatory variable was fully absorbed in the model. For this, the trade intensity and intensity of intra-industry trade play their roles in a better way; second, the reason for the varying results during the different periods is the changing patterns of the trade during the two periods. The emergence of new "triangular trade" model made the comovement of their business cycle strengthened, and their trade intensity also improved; Third, the channels through which the trade intensity affects the business cycle comovement are not only the intra-industry itself, but also the "vertical trade" of inter-industry trade. The second part is the conclusion of the empirical examination: first, the trade intensity has a promoting affect on the business cycle comovement; second, the "vertical trade" of inter-trade is also a channel through which the trade intensity promotes the business cycle comovement.