Examining structural stability and time-varying causality between exports and economic growth in China amidst shocks

Purpose China’s growth miracle is built on the foundation of export-driven economic growth. However, there is concern that both internal and external shocks could affect China’s economic growth model. This study examines the structural stability and the time-varying causality between China’s exports and economic growth. Design/methodology/approach Building on the neo-classical growth model, the study used Ditzen et al. (2021) and Shi et al. (2018) to investigate structural stability and time-varying causality between exports and economic growth. Quarterly data from 1960Q1 to 2023Q4 were used for the analysis. For robustness, ordinary least squares, fully modified ordinary least squares and instrumental variables two-stage least squares were used to examine the effect of exports on economic growth along the identified structural breaks. Findings Our findings are twofold. First, we found structural instability in the relationship between exports and economic growth. Also, exports have a positive effect on economic growth across structural break regimes. Second, while the linear causality method only shows a partial one-way causality that runs from economic growth to exports, the time-varying causality method shows a two-way causality between the two variables. Practical implications The Chinese government should continue to pursue an export-driven growth strategy through industrialisation and innovation. However, this must be done in light of the current dynamics of the Chinese economy, which is increasingly shifting towards consumption-led growth. Originality/value To the best of our knowledge, only this study tests the structural breaks and time-varying causality between exports and economic growth in China to verify whether the export-led growth model of China still holds.