Executive Summary
This paper provides a quantitative analysis of the impact on New Zealand of economic growth in China through the framework of an econometric model. It is the third of three working papers looking at the impact of China on the New Zealand economy.
The analysis compares the roles of China and the US both for growth in New Zealand and also for world commodity prices.
Using models estimated from the mid-1980s to 2011, growth spillovers from China are important for New Zealand, with estimates of the accumulated increase in domestic GDP from a one percent increase in output in China being in the range of 0.2 to 0.4 percent.
It is striking that growth spillovers are substantially greater from the US than from China, despite the latter's increasing importance in the world economy.
The impact of China on global commodity prices has been steadily increasing over time, with growth in China having strongest effects on dairy and aluminium price inflation. US demand, on the other hand, is generally more important than China in driving global commodity prices.
Both domestic and foreign shocks are important drivers of real exchange rate fluctuations, the contribution of the latter (particularly commodity prices) is relatively more important.
Alongside the broader descriptive analysis by Bowman and Conway (2013a, 2013b), these results highlight the growing importance of China for the contemporary New Zealand economy.
