Exogenous Shocks, Factor Input Changes And Output Volatility

Using a panel data which ranges from 1978 to 2009 and which covers 31 provinces of China, this article empirically estimates the influence of two external shocks, namely the 1997 financial crisis of South-east Asia and 2008 subprime crisis originating from the United States, on the volatility in output in 31 provinces of China as well as the consequences of these provinces'responses to the two shocks. To probe the sources of volatility in output, this article investigate into the mechanism through which the volatility in labor and investment impacted the volatility in output. This article finds:firstly, external shocks raised the volatility in output of the 31 provinces, especially the subprime crisis. Secondly, the volatility in investment can significantly increase the volatility in output while the influence of volatility in labor did not enter significantly. Thirdly, the mechanism of shocks'influences on volatility is that shocks significantly increased the volatility in investment but did not have significant influence on the volatility in labor. Apart from the above finding, when it comes to the ingredients of the volatility in investment, it is the volatility in internal investment rather than the volatility in external investment (FDI) which was heavily affected by the external shocks. Fourthly, when the economy is exposed to international trade, the intervention of a province which is more open will increase the volatility in output much more than a province which is not that open. Finally, this article concludes the complete correlation between external shocks and volatility in output:At first, exogenous shocks heightened the volatility in internal investment but did not affect the volatility in external investment, as well as the volatility in labor. Consequently, the volatility in internal investment increased the volatility in output,during the above process the intervention of local governments would worsen the volatility in output,...