International Trade,home Market Effect And Terms Of Trade: Chinese Experience

For a long time, the competitive force of Chinese foreign trade mainly comes from the comparative advantage, but this kind of competition does not last. Instead, if give full play to Chinese domestic market, it will bring the steady development of Chinese foreign trade for power. This force was krugman called "Home Market Effect". The home market effect is to point , if a world exist increasing returns and trade cost, then those relatively greater demand their country will export more products. In view of this, the home market effect on the development of Chinese foreign trade and policy has great significance.The home market effect analyses the relationship between a country with a large home market and this country's export,With productivity effects of impact for comparison. on the basis of the existence of the home market. We can explain the importance of domestic demand for long-term stability promoting China's economic. The characteristics of this paper is to take the consumption data of China and America, using the theory and empirical method, made a breakthrough to analyze the empirical relations between China's economic growth and the change of its terms of trade from a viewpoint of home market effect and productivity shock effect. Finally we can come to the following conclusion: firstly, relative to the productivity shock effect model, the home market effect can give the better explain which every variables accord with the setting of the home market; secondly, the empirical results of model proofs consumption of China and America have the opposite effect on terms of trade which Chinese consumption promote and American consumption inhibit, the same time, elastic in China is greater then America.Finally,we presented some policy suggestions:the first, to persist in reform and opening up, to continue the development of foreign trade; the second, enhance enterprises' independent innovation ability; the third, give full play and attention to the government's macro control ability.