Is the Export-led Growth Hypothesis Enough to Account for China’s Growth?

The purpose of the present paper is to analyze whether the expansion of the Chinese economy is based on an export-led growth effect or, on the contrary, Chinese development between 1964 and 2004 was driven by investment. However, since we know the relevance of the real exchange rate in an open economy such as China, we also investigate the relationship between the real exchange rate and growth. Our empirical evidence shows that both investment and exports are relevant factors in the Chinese economy. These results are consistent with the idea that not only are exports the main engine of growth, as other papers have argued, but it also seems that the significant investment effort has played a key role in accounting for China’s growth in the last few decades. Furthermore, unlike previous works, we find that the real exchange rate has been used as an additional economic policy to encourage output in the long run