A VAR Model of Stimulating Economic Growth in the Guangdong Province, P.R. China

  • Ortiz, Jaime (Global Strategies and Studies, University of Houston) ;
  • Xia, Jingwen (Global Strategies and Studies, University of Houston) ;
  • Wang, Haibo (A. R. Sanchez Jr. School of Business, Texas A&M International University)
  • Received : 2015.03.18
  • Accepted : 2015.05.10
  • Published : 2015.05.30


The authors calculate the long-term predictability of GDP, domestic demand, investment, and net exports for Guangdong province, P.R. China from 2000 to 2013. A vector autoregressive (VAR) model with quarterly data for this period is first co-integrated then the Granger causality test is applied to empirically assess the relationships among gross domestic product (GDP), consumption, investment, and net exports. There is a strong causality effect between investment and net exports in Guangdong province. However, the variance decomposition results indicate that exports respond to foreign shocks rather than domestic ones, making their impact on the Guangdong economy to predict. Results show the stimulating effect of domestic demand on GDP is larger than the stimulating effect of net exports and much larger than even the stimulating effect of investment. The analysis suggests that there are dynamic influences with various levels of persistence between GDP, consumption, investment, and net exports. Macroeconomic policy adjustments are urgently required to expand domestic demand and thereby stimulate economic growth in Guangdong province.


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