Estimation of China's disaggregate import demand functions

We estimate the disaggregate import demand functions for three basic classes of goods as defined in the System of National Accounts (SNA): capital goods, intermediate inputs, and final consumption goods, and use the findings to shed light on the effects of China's economic growth on its current account. The results showed that as China switches from exports to domestic demand as a key driver for economic growth, China's trade surplus would be expected to shrink rather quickly.

► We examined China's aggregate import demand functions by considering disaggregate imports. ► Estimated price and income elasticities differ across commodities. ► The results show that economic growth will affect China's trade balance negatively. ► China's trade surplus would be expected to shrink rather quickly if domestic demand becomes a key driver for economic growth.