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External Demand Decline‐caused Industry Collapse in China

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  • Pingyao Lai

Abstract

Industry collapse has become an important phenomenon in China's recent economic growth fluctuation. This paper develops a simple model to analyze this phenomenon. Our analysis focuses on an external demand decline‐caused industry collapse. The model reveals that the combination of large‐scale decline in external demand with a horizontal domestic supply curve causes the domestic export industry to undergo a sharp decrease in output in a short period of time, which further leads to a sharp decline in employment. The conventional stabilization policy is less effective in coping with this sudden industry collapse. The Chinese Government needs to formulate an appropriate structural industry stabilization policy to cope with the sudden industry collapse, and, in particular, to implement a direct employment aid program to deal with unemployment resulting from the industry collapse.

Suggested Citation

  • Pingyao Lai, 2010. "External Demand Decline‐caused Industry Collapse in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(1), pages 47-62, January.
    • Handle: RePEc:bla:chinae:v:18:y:2010:i:1:p:47-62
    DOI: 10.1111/j.1749-124X.2010.01180.x
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    References listed on IDEAS

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    1. Boothman, Barry E.C., 2000. "High Finance/Low Strategy: Corporate Collapse in the Canadian Pulp and Paper Industry, 1919–1932," Business History Review, Cambridge University Press, vol. 74(4), pages 611-656, January.
    2. Roberto Marchionatti, 1995. "Keynes and the Collapse of the British Cotton Industry in the 1920s: A Microeconomic Case against Laissez-Faire," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(3), pages 427-445, March.
    3. Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-523, June.
    4. Kenneth D. Brown, 1993. "The collapse of the British toy industry, 1979-1984," Economic History Review, Economic History Society, vol. 46(3), pages 592-606, August.
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    Cited by:

    1. Liping He & Gang Fan & Panpan Yang, 2010. "What Caused the Sharp Downturn in the Chinese Economy during the Global Financial Crisis? A Critical Note on Causality in Trade Linkage," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 52-69.
    2. Chui Ying Lee & Shinji Kaneko & Yuichiro Yoshida & Sun Hangcheng & Masaru Ichihashi & Katsufumi Fukuda, 2021. "Equivalence Gain of the Global Financial Crisis: A Note," Arthaniti: Journal of Economic Theory and Practice, , vol. 20(1), pages 111-121, June.
    3. Amankwah-Amoah, Joseph & Zhang, Hongxu, 2015. "Business failure research," MPRA Paper 67848, University Library of Munich, Germany.

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