China has been experiencing persistent growth slowdown in the past decade. An important question is, what is the main cause for this slowdown and what policy recommendations should be provided? In this paper, a simple model is used and the corresponding logical predictions are examined awith real-life data.
The study reaches the conclusion that China’s growth slowdown is mainly driven by negative and persistent external demand shocks. Further discussions from the perspective of New Structural Economics are provided to show how policy recommendations are different from the standard Keynesian argument and why structures are endogenous and relevant.