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The Impact of the China Factor on the pre-1997 Hong Kong Economy: a macroeconometric analysis

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  • Shu-Ki Tsang
  • Shu-Hung Tang

Abstract

After the reunification of Hong Kong and China in 1997, Hong Kong is assured of a high degree of autonomy by the Basic Law. However, there remains some worry about the territory's economic viability and financial stability. Whether Chinese policies and China's remarkable growth momentum could continue to boost Hong Kong's prosperity has become an issue of concern. As the Chinese economic reform proceeds, the 'China factor' has been generating an increasing influence on the performance of the Hong Kong economy. Unfortunately, there have been very few rigorous quantitative analyses of this rapidly evolving development. To fill the gap, we have constructed a macroeconometric model of Hong Kong which takes into detailed account the linkages of the two economies including trade and capital flows. Estimation of the model incorporates error correction techniques to establish short-run dynamics and long-run equilibria. Our findings have identified crucial channels through which the 'China factor' has exerted impact on the Hong Kong economy. It is shown that the factor was not overwhelming up to the recent past, in terms of its stabilizing effects in the financial market and its stimulation on growth, although its influence may rise in the post-1997 era.

Suggested Citation

  • Shu-Ki Tsang & Shu-Hung Tang, 1998. "The Impact of the China Factor on the pre-1997 Hong Kong Economy: a macroeconometric analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 12(1), pages 89-106.
    • Handle: RePEc:taf:irapec:v:12:y:1998:i:1:p:89-106
    DOI: 10.1080/026921719800000027
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    2. Tsang, Shu-ki & Ma, Yue, 1997. "Simulating the impact of foreign capital in an open-economy macroeconomic model of China," Economic Modelling, Elsevier, vol. 14(3), pages 435-478, July.
    3. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    4. Cheung, Yan-leung & Tsang, Shu-ki & Mak, Sui-choi, 1995. "The Causal Relationships between Residential Property Prices and Rentals in Hong Kong: 1982-1991," The Journal of Real Estate Finance and Economics, Springer, vol. 10(1), pages 23-35, January.
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    Cited by:

    1. Yue Ma & Guy Meredith & Matthew S. Yiu, 2002. "A Currency Board Model of Hong Kong," Working Papers 012002, Hong Kong Institute for Monetary Research.
    2. Zhijun Zhao & Yue Ma & Yuhui Liu, 2005. "Equity Valuation in Mainland China and Hong Kong: The Chinese A-H Share Premium," Working Papers 142005, Hong Kong Institute for Monetary Research.
    3. Fuchun Jin, 2002. "A Model to Analyze the Macroeconomic Interdependence of Hong Kong with China and the United States," Working Papers 062002, Hong Kong Institute for Monetary Research.
    4. Asenso-Okyere, Kwadwo & Workneh, Sindu & Rhodes, Edward & Sutherland, John, 2009. "Rebuilding after emergency: Revamping agricultural research in Sierra Leone after civil war," IFPRI discussion papers 869, International Food Policy Research Institute (IFPRI).

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