Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model

Gauvin, Ludovic and Rebillard, Cyril (2013): Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model.

Abstract

China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are increasingly rising, this paper assesses to what extent a hard landing in China would impact commodity exporters. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of twenty-five countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil price separately to account for their different end-use patterns and consumption intensity in China, and we identify two specific transmission channels to commodity exporters: through exports (with both volume and price effects), and through investment (a fall in commodity prices reducing incentives to invest in the mining sector). According to our estimates, Latin American countries would be hardest hit – with a 6 percent cumulated growth loss after five years – followed by Asia (ex. China); advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling.

• Item Type: MPRA Paper
• Language: English
• Keywords: China; hard landing; spillovers; global VAR; conditional forecast; emerging economies; commodities; recoupling
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F44 - International Business Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets

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