On Structural Change In China's BOP Indicators

A correct understanding of the property and the mechanism of BOP indicators' data generating process is of great meaning in policy analysis, impact analysis of international events, and econometric modeling of prediction. Big shocks and events such as unification of exchange rates of RMB in 1994, Asian Financial Crisis in 1997, and the entrance to WTO in 2001 impacted greatly on the economy of China, which probably lead to structural change in the data generating process of the BOP indeicators. The structural changes in BOP indicators of China are investigated in this paper.First of all, based on careful analysis of the data of various accounts in BOP, it is found that China's BOP is mainly reflected on the change of foreign trade, foreign direct investment and foreign exchange reserves. Therefore, this thesis concentrates on the structural change in the above three areas in the later parts. Secondly, a detailed introduction to unit root test with exogenous or endogenous breakpoint is given in this paper. Moreover, we create the critical value of exact sample size through Mont Carlo simulation for following empirical application. Finally, we investigate the structural changes in main BOP indicators of China, such as import, export, total foreign trade, foreign direct investment, foreign exchange reserves, and nominal exchange rate, also discuss the impact of international environment and trade policy changes on these series.It is revealed by the result that, foreign exchange reserves series is stationary, and import is a unit root series without any structural breaks. The other 4 series, export, total foreign trade, foreign exchange reserves, and nominal exchange rate, show the characteristic of structural change, which can be construed as segmented trend stationary around one or two structural breaks. Unification of exchange rates, Asian Financial Crisis, and the entrance to the WTO are the main reasons of structural changes in these series.