CHINESE-EMCCA TRADE AND ECONOMIC GROWTH OF EMCCA

Seydi Ababacar DIENGLAREM - UCAD

Introduction and litterature review• Since the end of the 1970s, the progressive

implementation of reforms and openness has allowed China to climb to second place in the ranking of world economic powers.

• Currently, China remains the largest exporter and one of the largest investors in the world. It has become a major player in the context of international trade and finance.

• To meet its huge demand for raw materials and semi -finished products, China intensifies increasingly the trade with the rest of the world, especially Africa.

• China has become the largest trading partner of Africa in the early twenty-first century, followed by France and the United States (Paulais, 2013).

Introduction• For the latter, trade between Africa and China was $

166.3 billion in 2011; which is a historical prowess. • Also, part of ever increasing oil imports come from

Africa (Andrésy et al., 2010), particularly the countries of the Economic and Monetary Community of Central Africa ((EMCCA).

• Traditional theories of international trade - Smith (1776), Ricardo (1817) view trade as a powerful driver of economic growth.

• Free trade appears as a must for countries that wish to sustainably improve their economic situation.

• In this perspective, all forms of barriers to international trade in goods and services is an inefficient strategy.

Introduction• In endogenous growth models, international trade

positively affects the growth of the participating countries, the only condition for international dissemination of knowledge and technology (Grossman and Helpman, 1995).

• When this condition is not satisfied, trade openness fosters innovation and growth in some countries over others. The theory of endogenous growth has enriched the study of the relationship between international trade and economic growth by introducing in the analysis the role of technical progress and intermediate goods - and their impact on the productive capacity of the country. For Edwards (1993), this theory demonstrates the existence of a long-term balance between trade openness and economic growth.

Introduction• Furthermore, it is compulsory to remember that

most multilateral organizations such as the WTO, World Bank, IMF and OECD are convinced that international trade generates predictable and positive effects on economic growth, hence their strong plea for a free trade globally.

• Countries lagging behind have a vested interest in integrating into the global economy to grow (Fischer, 2000).

Introduction• Several studies and empirical analyses have been

devoted to the relationship between international trade and economic growth.

• This link is one of the most studied ones in the literature on economic growth and development topics.

• The majority of empirical studies conducted conclude that international trade greatly facilitates and stimulates growth by allowing participating countries to achieve some gains, particularly in terms of capital accumulation, technological progress and industrial development.

• Thus, the openness to trade and FDI policies are most appropriate to enjoy sustained economic growth (IMF, 2001).

Introduction• In light of these theoretical and factual circumstances, a

legitimate question arises: what is the impact of Chinese-EMCCA trade on economic growth of this area?

• This article stipulated that the primary objective was analyzing the effects of trade between China and the countries of the EMCCA economic growth.

• Trade is measured from several macroeconomic variables of open trade, exports and imports - their sum - the total trade volume.

• However, we are also concerned about the effects of foreign direct investment (FDI) from China on EMCCA economic growth.

• This attention to FDI is justified by the fact that they are often closely related to international trade.

Introduction• Our main hypothesis is that Chinese-EMCCA trade

boost economic growth in the EMCCA countries and thus positively affect the growth rate of GDP per head.

• However, the model chosen incorporates other control variables - the enrollment rate in secondary education in the working age population (human capital proxy), the investment rate (proxy of physical capital) and the growth rate of the population.

Introduction

• To achieve our goal, the dynamic panel data model with a specification proposed by Abah, Atozou and Dieng (2014), derived from the Solow (1956) increased by Mankiw, Romer and Weil (1992) revised and expanded FDI, is used as allows to highlight the effects of these variables on economic growth of the area.

• In this paper, we use of a method - the GMM system - which is not employed enough to assess the impact of trade openness on economic growth.

Introduction• Panel data used in this paper concern the 6 EMCCA

countries - Cameroon, Congo, Gabon, Equatorial Guinea, Central African Republic and Chad - and cover the period 2000-2013.

• The data were retrieved from World Bank sites (World Development Indicators and Worldwide Governance Indicators) for variables GDP and investment, UNCTAD trade-related variables of UNESCO for Education and Chinese year book for Chinese FDI.

Model specification• The importance of international trade for economic growth of

countries was demonstrated by most theorists, especially the Liberals. However, it remains, empirically, discussions on the relevance of the measurement and the choice of techniques used to assess the relationship between international trade and economic growth.

• Indeed, several types of models were used to determine the impact of international trade on production, often with different results

• In this paper, we adopt the dynamic panel data model with a specification as said above. This specification seems more appropriate, in particular, because of the specific technical advantages with GMM models and the short time horizon (2000-2013) chosen to conduct this empirical study.

• This specification includes two very closely related models.

• The first, proposed by Busse and Koniger (2012) and Ulasan (2012), is written :

• The second model of this specification is the following :

Model specification• The dependent variable is the growth rate of GDP per capita (ΔGDPpc) - the

difference in logarithm of GDP per head in two consecutive years. The explanatory variable is the initial level of GDP per head (GDPpc (t -1)). The use of the latter makes it possible to measure the beta - convergence.

• The other explanatory variables are control variables. For the following variables:

• -The savings rate (InvestPart) is approached by the hand means investments in real GDP per capita at current prices (GFCF / GDP).

• - The GrowthPop variable is the growth rate of the labor force.• - Investment in human capital (education) is approached by the fraction of

the population over 15 years educated in secondary education.• - Trade openness (Aperture = X) denotes the ratio of total trade (exports

plus imports) and current GDP. We add the variable total trade (Vol trade) to account for the positive result of access to more technology - due to increased trade - economic growth. We also use the volume of imports (Import) and the Export (Export) to assess their effects on the growth of the EMCCA countries.

•

Model specification• This set of five variables represent the breakup of the Solow residual (1956) - such

technical progress. The last four following variables are institutional variables. Their definitions have been proposed by the World Bank (Worldwide Governance Indicators.

• Voice and Accountability is the variable that expresses the perceptions of the citizens of a country of their ability to participate in selecting their government, as well as the freedoms of expression, association and the media.

• - Political stability and absence of violence reflects the perceptions of the likelihood of destabilization or overthrow the government by unconstitutional or violent means, including political violence and terrorism.

• - Government effectiveness measures perceptions of the quality of public services, that of the civil service and the degree of its independence from political pressures, the quality of the formulation and implementation of policies, and credibility the commitment of the Government in relation to them.

• - The rule of law expresses perceptions of trust and respect of the company's rules by agents, and notably the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence.

• The introduction of institutional variables is justified theoretically and empirically. Indeed, most of the work on the determinants of economic growth in Africa often uses no strictly economic variables including the socio-political aspects and especially institutional.

Results and discussion

Dlnpibpc Estimation 1 Estimation 2 Estimation 3 Estimation 4 Estimation 5

L.lngdppc -0,63413*** -0,63303*** -0,58796*** -0,63989*** -0,63544***

lnInvestPart -0,13348*** -0,12556*** -0,12941*** -0,11724*** -0,09611***

lnEducation 0,18659 0,18757 0,18169* 0,12261 0,27279***

Growthpop -0,04197 -0,12378 -0,08304 -0,11358 -0,06225

Respons 0,11081*** 0,13907*** 0,19408*** 0,14817*** 0,05598

StatPol 0,05611*** 0,05443*** 0,02874 0,04294** 0,02811*

Effgouvern -0,02836 -0,04445 -0,06242 -0,01928 -0,00989

State law 0,26114* 0,24195 0,14591 0,22037 0,07883

lnOpennness 0,03857*** -0,02331***

lnExport 0,03751***

lnImport 0,03263***

lnVolTrad 0,04696***

lnFDISPart 1,5726**

Residue autocorrelation tests

AR(1) test, p-value

0,063 0,048 0,088 0,063 0,053

AR(2) test, p-value

0,296 0,268 0,234 0,263 0,358

Validity testing instruments

Test de Sargan P_val: 0,309 P_val : 0,402 P_val: 0,160 P_val: 0,289 P_val : 0,224

Table. Summary of results of the estimates and econometric testsSignificant at 1% (***), at 5% (**) and at 10% (*)

Results and discussion• Regarding estimate 1, the results indicate that the variables voice and

accountability (Response), political stability (StatPol) and trade openness (Opening) have a positive and very significant impact (at the 1% level) on the growth rate head. Thus, an increase of one percent of the political stability and accountability respectively causes an additional per capita growth of 0.1 and 0.06 points while an increase of 1% of trade openness rate generates only 0.04 points of growth per head more.

• The rule of law (State Law) has a positive effect on per capita growth. Improving the rule of law of one percent leads to an increase of 0.3% economic growth. Institutional variables therefore play a significant and positive role in the economy.

• These results confirm the theoretical predictions stating the positive consequences of political stability, accountability, rule of law and trade openness on economic growth.

• They thus suggest that it is advantageous for the EMCCA countries to substantially increase their trade with their Chinese partner and improve the rule of law, political stability and accountability.

• This result is consistent with that obtained by Akua Akuffo et al. (2012). These have shown that trade openness has a positive relationship with economic growth for 38 African countries over the period 1980-2008.

Results and discussion• The impact of the share of Chinese FDI in GDP growth of

EMCCA countries is very significant (Estimated 5). This result corroborates those of Nabine (2009), Atoyebi et al. (2012).

• Indeed, the estimate indicates that a 1% increase in the share of FDI in GDP generates an additional 1.57 percentage point of economic growth per capita for the EMCCA countries.

• The effect of the proportion of Chinese FDI on economic growth of this area is considerably high, especially compared to the effects of other significant predictors.

• EMCCA countries have interest to intensify economic relations with China, lay more emphasis on cooperation between their companies and those of China to substantially and sustainably increase the share of Chinese FDI in GDP and subsequent economic growth.

Conclusion• The main results of the estimates of various macroeconomic aggregates

indicate that trade openness to trade, exports, imports with China and the volume of trade has a positive and very highly significant impact on the growth rate per head.

• Ultimately, we note that the overall results confirm the theoretical predictions stating the positive impact of trade openness on economic growth. These results derive two main implications for economic policy.

• First, EMCCA countries have an interest to substantially increase their trade with China. They should, in consultation with China, establish a framework for exchange so as to have a better distribution of gains from trade. T

• he establishment of partnerships between Chinese and African enterprises should facilitate the achievement of this objective.

• Second, these countries must also create and maintain a sustainable stable and institutional macroeconomic environment to attract more FDI, especially Chinese, given their positive and highly significant effect on economic growth.