6 Conclusion
The effects of China's economic growth on the New Zealand economy is a topical issue, due both to the continued rapid growth of China and also its importance as an export market for New Zealand primary produce. However, to our knowledge, none of the available econometric models for New Zealand specifically explore the extent of growth spillovers from China to the domestic New Zealand economy. Indeed, surprisingly few studies exist that examine the wider issue of growth spillovers from China to other countries.
The substantive conclusion of the present paper is that, 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. Nevertheless, it is also striking that estimated growth spillovers are substantially greater from the US than from China, despite the latter's increasing importance in the world economy. Although 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.
The possibility of time-varying impacts is also investigated through estimation using a ten year window of data. This provides some evidence of time-variation, with the greatest impact from China applying for about a decade from the mid-1990s, but also being relatively large in the latter part of our sample period. 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.
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. Although data availability means that our estimations extend only to the end of 2011, more recent indicators, including China's demand for New Zealand dairy products, point to the role of China being maintained or increased in the near future.
A further extension of this work would be to include a broader set of countries and variables in the model to allow for more realistic cross-country dynamics such as the inclusion of Euro Area and additional financial variables.
