Government intervention ability and business cycle co-movement:an empirical study based on China and its major trading partners

LIU Dexue1 CHEN Ding1

(1. EconomyDepartment, Jinan University)

【Abstract】Applying a simultaneous equations model, this paper empiricallyinvestigates the effect and the influencing pathway ofgovernment intervention ability on business cycle co-movement by using paneldata of China and itsmajor trade partners from 1997 to 2011. The results indicate that thedifference in government intervention ability influence bilateral businesscycle co-movement significantly through direct and indirect (internationalconduction channels) ways. The effectsof both ways are negative, but the degrees of influence differ remarkably. The endogenousrelations among complementary/alternative trade, vertical/horizontal investmentand industrial structure as well as the inconsistent influence of the difference ingovernment intervention ability on different conduction channels interms of both direction and degree make the indirect mechanism quite complex,contributing to a final negative effect resulting from the combined result ofthe negative effect of trade and industry structure and the positive influenceof investment. The influence of government interventionability on the conduction channels is not consistent with their influence on the businesscycle co-movement through different channels, concludingthat “more powerful inintervention ability equating to more efficient” might be a misconception.

【Keywords】 difference in government intervention ability; business cycle co-movement; conduction channels; simultaneous equations model;

【DOI】

【Funds】 National Social Science Key Fund Program “Development Trendof Global Division of Labor in Post-Crisis Era and Its influence on China’seconomic development” (09AZD015) the 12th Five-yearPlan Philosophy and Social Science Program of Guangdong Province “A Research inLabor Division and Coordinate Development Model in Pearl River Delta”(GD13CYJ09)

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(Translated by Zhou Ye)

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This Article

ISSN:1002-4670

CN: 11-1692/F

Vol , No. 05, Pages 31-40

May 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 Studydesign
  • 3 Analysis of estimation results
  • 4 Conclusion and Suggestions
  • References