Trading Kuznets curve: empirical analysis for China

Due to inspiring growth over the past 20 years, the dynamics of Chinese exports have been the focus of many researchers. In contrast to current literature, this study examines the quadratic relationship between China’s real exports to 154 partner countries and the income of trading partners from 1996 to 2019. The findings obtained from the second generational econometric analysis confirm cross-section dependence and heterogeneous slope among panel members. Second, while the GDP per capita of partner countries has a positive impact on China’s exports, the quadratic of GDP per capita has a negative impact. These findings indicate an inverted U-shaped relationship between China’s exports and GDP per capita of its partner countries—thus, validating the trading Kuznets curve (TKC) hypothesis. The appreciation of the Renminbi (RMB) has statistically significant negative effects on China’s exports. From a policy perspective, Chinese policymakers could consider the TKC hypothesis when determining market and export strategies. Additionally, the Chinese monetary authority could consider stabilizing the value of the RMB.