THE DIRECT IMPACT OF ECONOMIC GROWTH ON THE SINO-AFRICA COOPERATION

Abstract: The goal for economic policy thus became the emulation of the economic structure found in Venice and in Holland， the bringing together of as many diverse professions as possible， all subject to increasing returns and technology change. Development strategy became one of the benchmarking and emulation. (Erik s. Reinert: How countries got rich and how poor countries stay poor， 2007， p95).The purpose of this study is to gain deep understanding of the impact of economic development on the China-Africa cooperation.

Key words: Economic cooperation， trade cooperation， natural resources， human capital， financial capital， exploration.

1. Introduction

In recent years， Asian tigers have played key roles in the world economy， ever than before. Collectively， these Asian countries contribute more than half of the world economy. Countries like China and India have kept an unbeaten record of world fastest growing economies for many years. Because of the consistent economic growth， China has gained a stable economy. Today China’s engagement with Africa is less motivated by ideological considerations than by a commercial agenda that aims to sustain rapid industrialization and economic growth rate.

2. Motivations and necessities for a Sino-Africa ties

At this stage of economic development， China need more energy to keep running the manufacturing sector. Further， her advancement in technology， especially in building technology is enviable. Therefore a strategic partnership with Africa will be beneficial to both since Africa is immensely rich in natural energy resources but her technology has nothing to write home about. This relation is an indisputable opportunity for Africa to mark a tremendous shift in its technology status.

With the help of Gravity Model we will discover that despite the disadvantage of distance between the two partners， economic development of both sides is the back-bone of the cooperation.

3. Research Methodology: Gravity model

The use of the gravity model in trade relations demonstrates that trade value is directly proportional to the economic mass and indirectly proportional the distance between to two countries. The gravity model of trade in international economics， similar to other gravity models in social science， predicts bilateral trade flows based on the economic sizes of (often using GDP measurements) and distance between two units. The model was first used by Tinbergen in 1962. The basic theoretical model for trade between two countries (i and j) takes the form of:

Where F is the trade flow， M is the economic mass of each country， D is the distance and G is a constant. The model has also been used to test the effectiveness of trade agreements and organizations such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO).Moreover in the case of China and Africa partnership， my task will be to highlight underlining factors.

3.1 The negative effect of distance

In the case of Sino-Africa international relations the formula can be rewritten as:

Where FCHINA， AFRICA is the trade flow between China and Africa， MCHINAMAFRICA is the economic mass or GDP of both China and Africa， DCHINA， AFRICA is the distance between China and Africa and G is a constant.

The interpretation of this formulae can be done by the analysis of variables therein one after the other.

Distance “DCHINA， AFRICA” in the gravity model is the denominator thus， inversely proportional to FCHINA， AFRICA the trade flow between China and Africa. This implies that the shorter the distance “DCHINA， AFRICA” between China and Africa， the higher the trade flow “FCHINA， AFRICA”. On the other hand， when is of a higher value of “DCHINA， AFRICA” the distance will be detrimental to the trade flow “FCHINA， AFRICA”.

From the gravity model here prove that the issue great distance between China and Africa is disadvantageous to their relationship. Aside the great distance between China and Africa， there are no direct maritime routes linking the two partners’.

Therefore a close look at the trade between China and Africa could not be an advisable one， looking at the distance and the associability between the two partners .More so because same or better products and services are easily accessible just very close in Europe and in America.

To further explore the gravity model， we will analyze another variable .As mentioned earlier， trade flow “FCHINA， AFRICA” between Africa and China is also defined by the economic mass “MCHINAMAFRICA” of both partners.

3.2Economic Development: The strong foundation

A decade ago Africa was labeled “the hopeless continent”， but surprisingly not long after that a profound change has taken hold. Labor productivity has been rising. It is now growing by， on average， 2.7% a year. Trade between Africa and the rest of the world has increased by 200% since 2000. Inflation dropped from 22% in the 1990s to 8% in the past decade. Foreign debts declined by a quarter， budget deficits by two-thirds

Seen through a bullish eye， this reinforces exuberant talk of “l(fā)ion economies” analogous to the Asian tigers. But there are caveats. In fact， in Africa as well as in Asia， the economic situation of two neighboring countries can be completely opposite. Very often right beside a country with a growing economy is another country with a poor economy. Some hold the view point that it is too early to talk about “l(fā)ion economy”. Others also question if Africa can match up with Asia Economically. Will Africa continue to rise? Or is this merely a strong upswing in a boom-bust cycle that will inevitably come tumbling back down?

After noting the high levels of interest in Africa from their members， they’ve added up the figures， crunched the numbers and reached a conclusion: the African growth story is no mirage. It’s the real thing.

“After emerging Asia， Africa is the fastest-growing region in today’s world. Many countries on the African continent have achieved great progress in stabilizing their economies and consolidating their rates of growth. What is remarkable about this outcome is that it has been achieved during a period of unprecedented global financial turbulence. There are challenges ahead for Africa， but the trend of solid growth of the past decade looks sustainable over the medium term.” George Abed， head of the IIF’s Africa and Middle East division.

Even though China’s economic growth rate has experienced a slowdown in the past few years， it remains one of the fastest growing economy in the world. It remains the world’s second largest economy by nominal GDP and by purchasing power parity after the United States. It is the world’s fastest-growing major economy， with growth rates averaging 10% over the past 30 years. China is also the largest exporter and second largest importer of goods in the world. On a per capita income basis， China ranked 90th by nominal GDP and 91st by GDP (PPP) in 2011， according to the International Monetary Fund (IMF)

A juxtaposition of the economic growth of both and China and Africa， can better explain to feasibility of a trade partnership between the two.

For that matter， GDP or economic mass “M”， according to our gravity model， is obviously the driven force of the Sino-Africa cooperation. This could be possible only within the last decade when at least Africa has begun to see improvement on it economy.

For an explanation to the gravity formulae we used earlier; we see that the driving force for the Sino-Africa trade flow “F” was supported by the economic mass “M” and the GDP growth of the both Africa and China in the past decade. From here we can see clearly that despite “DCHINA， AFRICA” which according to our formula is a great disadvantage to trade flow “F”， trade was still possible due to the importance of “MCHINAMAFRICA” of both parties. “MCHINAMAFRICA” is therefore big enough to over shadow “DCHINA， AFRICA” so much so that trade flow “F” could still be so relevant for China and Africa to do into this partnership.

4. A special case of Zhejiang province and Ghana

Zhejiang province and Ghana have marked significant economic growth in China and Africa respectively.

In recent years Zhejiang has followed its own development model， dubbed the “Zhejiang model”， which is based on prioritizing and encouraging entrepreneurship， an emphasis on small businesses responsive to the whims of the market， large public investments into infrastructure， and the production of low-cost goods in bulk for both domestic consumption and export. As a result， Zhejiang has made itself one of the richest provinces， and the “Zhejiang Spirit” has become something of a legend within China

On the other hand the Gross Domestic Product (GDP) in Ghana expanded 2.40 percent in the second quarter of 2012 over the previous quarter. GDP Growth Rate in Ghana is reported by the Ghana Statistical Service. Historically， from 2006 until 2012， Ghana GDP Growth Rate averaged 2.1 Percent reaching an all-time high of 16.8 Percent in June of 2011 and a record low of -5.9 Percent in June of 2010. Ghana’s has one of the highest GDP per capita in West Africa. The country has a diverse and rich resource base with gold， timber， cocoa， diamond， bauxite， and manganese being the most important source of foreign trade. In 2007， an oilfield which may contain up to 3 billion barrels of light oil was discovered. Zhejiang on the other hand has become one of the most commercial and richest provinces in China. Compared to many other Chinese provinces， the development of different regions in Zhejiang is more balanced.

Ghana is about to become a major oil producer. The country’s newfound oil 60 km offshore is expected to bring in $4.5 billion this year and ultimately about $9 billion a year from 2013 onward for quite some time.

In 2011， Ghana made progress in consolidating the gains made in the management of its macro-economy in 2010 as year on year inflation dropped to 8.7 % and the fiscal deficit fell to 4.3 % of gross domestic product (GDP).

In the case study of Zhejiang and Ghana the Gravity Model is very useful in defining the role and importance of every indicator for a feasible and profitable trade. The Gravity Model for Zhejiang and Ghana can be rewritten as:

After exploring the distance variable “D”， we will be analyzing the variable “M” which represents ‘’economic growth’’.Thus from the Gravity Model

In conclusion， the gravity model in international trade explains that trade between China and Africa has been possible and even increased over the years due to a strategic proportionality between the variables. Even though distance ”D” between China and Africa is disadvantageous to the trade flow “F” ，economic Mass “M” or GDP value in this case is big enough to cover up and still project a reasonable trade flow “F”.

5. Challenges emanating from the Sino-Africa partnership.

The African market is currently being flooded with different kinds of imitated and substandard commodities， including textiles， beverages， mobile phones， detergents which are mostly imported into the country. While some of the imported items have their local substitutes， others have both the imitation and the original imported onto the local market at lower prices; with such an impunity that leaves one wondering whether Ghana understands globalization and free trade more than any country.

6. Conclusion

Through this Research it has been proved that in spite of the great deal of distance between China and Africa their cooperation can boast of tremendous achievement over the years and still looking forward for greater heights in the future. With the Gravity Model we demonstrated that the Sino-Africa cooperation depends totally on the economic development of both China and Africa.

References:

[1]Armaud Costinot and Dave Donaldson.2012.Ricardo’s Theory of Comparative Advantage; Old idea， new Evidence. Working Paper 17969.

[2]Chen Zhimin and Jian Junbo. 2009. Chinese provinces as Foreign policy Actors in Africa. China in Africa project. Occasional paper no 22.