An Empirical Study on the Contribution of Foreign Trade to the Economic Growth of

Southwest Minority Region of China

Keyu Deng Business School,

Jinggangshan University, Ji’an, Jiangxi, 343009,

P.R.China Y

Yuhong Li (Corresponding author)

Business School, Jinggangshan University, Ji’an,

Jiangxi, 343009, P.R.China liyuhongchina@gmail.com

Xiaoyin Wang (Corresponding author)

College of Science, Huazhong Agricultural University, Wuhan，

Hubei，430070，P.R.China wxywxq@126.com

Abstract: The development of foreign trade has become one of the focuses of the world’s attention. The prospects and competitive forces reveal the developing possibility of one country or region. The southwest minority region is no exception. On base of the existing literatures, the empirical study shows that during the 30-year reform and opening-up: ①foreign trade has contributed a lot to the GDP growth of foreign trade and still has great potential to be tapped. ②There is a positive correlation between the foreign trade and GDP. And the correlation coefficient (0.991) between GDP and import is bigger than the correlation coefficient (0.988) between GDP and export. It indicates that import has more positive effect on GDP growth. Finally, the paper points out that in order to maintain the economic growth, Southwest minority region must unswervingly implement the opening-up policy and be aware of trade protectionism.

Keywords: foreign trade, Contribution, simpler regression, southwest minority region

Ⅰ. INTRODUCTION

Since the reform and opening up, China's foreign

trade, which is playing a significant role in the world, becomes more and more important. But the proportion of China's total import volume in the GDP can not match the average level of the developed countries. Obviously, the foreign trade is closely related to economic growth in China. The importance of foreign trade for a country is increasingly prominent, though there are many researches like Xu Qifa and Jiang Cuixia (2002) related to contribution that foreign trade to GDP growth, researchers particularly focus on one region or region is not common. Since the reform and opening up, foreign trade in Southwest minority region has experienced rapid development. From 1978 to 2008, exports and imports in Southwest minority region increased from 0.407 billion dollars to 27.015 billion dollars. The increase of foreign trade is faster than the increase of GDP, and the proportion of foreign trade in GDP is increasing too. Therefore, this paper attempts to study on the contribution

of foreign trade to GDP growth in Southwest minority region since the reform and opening up.

Many domestic scholars analyzed foreign trade’s contribution to GDP growth by studying the stimulating effect of net export. In four-sector economy,

�GNP = �C+�I+�G+（�X﹣�M） That’s to say, the GNP increment (△GNP) equals

the sum of consumption increment（△C） and investment increment （△ I ） and the government expenditure increment (△G) and the gross export increment (△X﹣

△M).Therefore, the percentage of increase of GDP growth caused by foreign trade equals to the product of GDP growth and the contribution degree of foreign trade GDP growth. And the contribution degree of foreign trade to GDP growth equals the quotient of the net export increment divided by the GDP growth increment.

There is certain shortcoming in this method, which partially takes Keynesian’s view and simply regards import as an out leakage of GDP to attain the result that import has negative effect on GDP growth. However, trade theory and practice proves that both import and export promote the national economy welfare and economic growth. For example, import of cheap commodities can decrease production cost and increase consumers’ welfare, and the import of capital goods and technology can promote the technological progress and improve labor productivity. Therefore, we cannot simply consider only foreign trade export or net exports to the national economy and the influence of foreign trade should be from the aspects of national economic role in promoting the comprehensive analysis and evaluation. Therefore, the following will get down on each total foreign trade volume index, namely, the gross foreign trade (import and export), the gross import, the gross export and the net foreign trade (the balance of export and import)on analysis of several aspects of GDP. As a result, both import and export should be considered in research to evaluate their influence on national economy separately. This paper analyzes contribution of foreign trade to GDP growth from the perspective of foreign trade volume, import volume, export volume and the net export volume respectively.

The general idea of this paper is to use multivariate

978-1-4244-4507-3/09/$25.00 ©2009 IEEE

linear regression analysis method in econometrics, taking indices related to foreign trade as repressors and GDP as explained variable in this model. Then it use SPSS 11.5 and Excel 2008 for statistical analysis in order to test foreign trade’s contribution to GDP growth of Southwest minority region.

Ⅱ. THE CONSTRUCTION OF MODEL

A. Hypothesis Different indices related to foreign trade contribute to GDP growth in different degrees. B. The Construction of Simple Regression Function

Y = A0 + A1X + ε Where y refers to indices related to GDP growth. X is

indices related to foreign trade. A1 is coefficient which stands for the degree of variable explainer’s increase caused by each unit’s increase of explaining variable. As different indices are discussed in this paper sepaRatioly, simple regression analysis is enough in the research. Taking statistic data from 1978 to 2008 of Southwest minority region as sample, this paper analyzes foreign trade’s contribution to GDP growth in Southwest minority region from four aspects including foreign trade volume, import volume, export volume and net export. C. Instruction of Data

Chinese southwest minority region mainly includes Sichuan province, Chongqing city, Yunnan province, Guizhou province, Guangxi autonomous region of zhuang people and Xizang autonomous region. Though each of the regions consists of variety of nationalities, Yunnan, Guangxi, and Xizang all consist of almost minorities, thus, the data from these regions would be considered as the data of minority regions. Chongqing although consists of more than 50 nationalities including Tu people, Miao people and so on, the proportion of the minorities there is just 6.37%. Therefore, the foreign trade in the minority region has little impact on Chongqing’s GDP growth. Then data of the minority region in Chongqing will not be dealt with as data of southwest minority region. However, Sichuan is quite different, it consists of variety of nationalities, and the proportion of minorities reaches 7%, especially, the land, in which minorities live, keeps 62.14% and in 2007, the autonomous regions in Sichuan realized 67.58 billion Yuan of GDP. In this case, the data of Sichuan will be considered as that of the minority regions even there must be difference with truth, but it won’t change the characteristics of this research much.

Ⅲ. CONSTRUCTION AND TEST OF ECONOMETRIC MODEL

A. Foreign Trade Volume’s Contribution

In order to reveal the total foreign trade’s contribution

to GDP, this paper analyzes the ratio of dependence on foreign trade and relation coefficient between foreign trade and GDP.

1) The Ratio of Dependence on Foreign Trade The ratio of dependence on foreign trade is the ratio

of total foreign trade in GDP, which reveals the dependency of a country’s economy and the open level of the country’s market. Therefore,

Ratio of dependence on foreign trade = total foreign trade / GDP

With the statistic data of foreign trade from 1978 to 2008 in Southwest minority region and related data figured out through the above formulas, the following figure could be achieved:

Fig. 1 The Trend of Dependency of Southwest minority region’s

GDP on Foreign Trade

2) Correlated Coefficient and Regression Analysis Based on the above analysis and data, it can be found that there is linear correlation between foreign trade volume and GDP.

The following part analyzes foreign trade volume’s contribution to GDP from the aspect of general correlation coefficient. The equation is

. ; ;

Based on the collected data, the author analyzed the

foreign trade volume of Southwest minority region from 1978 to 2008, and attained the general correlation coefficient ρ =0.99, so there is strict correlation between foreign trade volume and GDP.

However, how much has foreign trade volume stimulated GDP growth? Using general least square technique estimation to do further regression analysis, before which T test and F test are carried on.

Suppose Y stands for the total GDP, and XM stands for the total foreign trade volume. The result of the regression analysis is showed as the following:

Fig. 2 The Fitting Effect of GDP and Foreign Trade Volume

The regression equation is Y = 216.999+9.297XM； R2=0.9812 F＝1512.41＞F0.05=4

The regression result shows that: (1) there is strong positive correlation between Southwest minority region’s foreign trade volume and GDP, and the fitting degree is very good, which means that the expansion of foreign trade can promote economic growth; (2) the regression coefficient of total GDP and foreign trade is 9.297, which means that every $1 increase in foreign trade can increase 9.297 Yuan in GDP, and the marginal output of foreign trade is quite high. It further verifies the importance of developing foreign trade. B. Correlations between Export Volume and GDP

1) Ratio of Dependence on Export The ratio of dependence on export refers to the degree

that a country’s national economy relies on export. That is the proportion of export in GDP, which can be attained in the formula:

Ratio of dependence on export= export / GDP

Based on the collected data, we also can compute the ratio of dependence on export in Southwest minority region (shown as table 2). It’s easy to find the overall increasing trend of the Ratio of Southwest minority region’s GDP on export from 1.34 %( 1978) to 5.63% (2008). It reached peak (7.74%) particularly in 1995. It indicates the Ratio of export dependence declined in some years although, it was increasing overall.

2) Correlated Coefficient and Regression Analysis Suppose Y stands for the total GDP, and X stands for export. Using general least square technique estimation to do further regression analysis on the bases of the data in table 1, and the result is shown as the following: The regression equation is Y=160.4558+16.39704X R2=0.976847 F＝1223.561＞F0.05=4.2

Fig. 3 The Fitting Effect of GDP and Export

The regression result shows that: (1) there is strong

positive correlation between Southwest minority region’s export and GDP, and the fitting degree is very good, which means that the expansion of export can promote economic growth; (2) the regression coefficient of total GDP and export is 16.397, which means that every $1 increase in export can increase 16.397 Yuan in GDP, and the marginal output of export is quite high. It further proves the rationality of export- led economy.

C. Correlation between Import Volume and GDP

1) Ratio of Dependence on Import Similar to the ratio of dependence on exports, the ratio

of dependence on import refers to the degree that a country’s national economy relies on import. That is the proportion of import in GDP, which can be attained in the formula:

Ratio of dependence on import = import / GDP Based on the collected data, we still can compute the

ratio of dependence on export in Southwest minority region increased a lot (shown as table 2), from 0.49% in 1978 to 5.66 % in 2008. It reached the peak (6.17%) in 1994 with some falls. That’ s to say the degree that economic growth of Southwest minority region relies on the growth of foreign trade volume is increasing in general, but import falls in some years due to certain reasons.

2) Correlated Coefficient and Regression Analysis Suppose Y stands for the total GDP, and M stands for import. Using general least square technique estimation to do further regression analysis on the bases of the data in table 1, and the result is shown as the following: The regression equation is, Y =698473+17.178M

R2=0.963 F＝759.82＞F0.05=4.2

Fig. 4 The Fitting Effect of GDP and Import

The regression result shows that: (1) there is strong

positive correlation between Southwest minority region region’s import and GDP; (2)The regression coefficient of total GDP and import is 17.178, which means that every $1 increase in import can increase 17.178Yuan in GDP, and the marginal outputs of export is quite high. It shows that Southwest minority region should perform better in import while it’s performing well in export.

D. Correlation between Net Export Volume and GDP

In order to study the final factor of foreign trade

contributed to economy, the paper analyzes the net export too. According to Y = F（K，L，X - M），the net export obviously promote economy. The net export is represented by X – M, Using general least square technique estimation to do further regression analysis, and the result is shown as the following: The regression equation is Y =615626.8 + 25.1693（X-M） R2=0.21258 F＝7.829＞F0.05=4.2

Fig. 5 The Fitting Effect of GDP and Net Export

The regression result shows that: (1) F＝7.829＞

F0.05=4.2, it indicates that the regression model is significant, the regression coefficient of total GDP and net export is 41.386, which means that every $1 increase in foreign trade can increase 41.386 Yuan in GDP, and the marginal outputs of foreign trade is remarkable high. (2) R2 = 0.21258, it indicates that the fitting degree is not good. The correlation coefficient is o.46, that is to say, GDP growth has little correlation ship with net export, which means GDP growth in Chinese Southwest minority region does not seriously depend on net export even that can contribute a lot to GDP growth. (3)GDP growth in Southwest minority region need not pursue trade surplus aimlessly, there are many other approaches to develop economy, such as developing tourism, promoting the domestic demand and so on. (4)The above result suggests that the development of export in Southwest minority region is not enough, neither of export or import plays at a higher lever. At such an era of integRatiod economy, Southwest minority region must take effective measures to enhance foreign trade to actively improve Southwest minority region Provence’s economy.

Ⅳ. CONCLUSION AND DISCUSSION

a） The empirical study suggests that the total foreign trade volume, the import volume, the export volume and the net export volume all have strict correlation ship with Chinese Southwest minority region’s GDP. The correlation between import and GDP is bigger than that between export and GDP. One should be paid more attention to is that GDP growth in Chinese Southwest minority region does not seriously depend on net export even that can contribute a lot to GDP growth, the contribution of foreign trade to GDP growth is not stable yet, Southwest minority region region’s GDP growth needn’t pursue trade surplus. This result tells us that Southwest minority region could not ignore the impact of import on stimulating economy while enhancing export, and the contribution of import to GDP growth at any time, or restrict the import to pursue foreign exchange deposit, and could not follow America to buy “CHINA” either.

b) At the beginning of Chinese reform and

opening-up, Southwest minority region’s GDP growth had lower Ratio of dependence on import, but higher Ratio on export. Perhaps it was the related change of Southwest minority region’s economy caused by the reform and opening-up. After 1995, the Ratio of dependence on export of GDP growth relatively decreased, it indicates that Southwest minority region didn’t keep up with the times to make the use of resources to develop its foreign trade. Thus, the contribution of foreign trade to GDP decreased sharply. This suggests that at the age of integration, the economic development would suffer from lousy international communication with countries.

C) Keynes, a famous economist, ever said:“export is for better import”. That is to say, export is to provide with better situation to support importing what we don’t have or more efficient products. As minority regions, though Southwest minority region can make the most of its resources and improve its employment Ratio though export, it could not restrict import while expanding export. Otherwise, it will slow down improving the living level of the people in Southwest minority region. Simultaneously, it will be harm for the effective use of global resources and the integration as well.

ACKNOWLEDGMENT

This paper is assisted by the project A Study on the Development of Service Industry and Service Trade in Jiangxi Province. Project ID: 09YJ249

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