The Impact of Terms of Trade Changes on Economic Welfare: Evidence from China

Based on the statistics of 1993-2010, this paper analyzes the changing trend and causes of terms of trade in China and studies the overall movement in China’s national wealth by introducing the GDI index under SNA accounting framework. This paper analyzes the relevance between export and real GDP by using the Pearson correlation and partial correlation method, with the final consumption as the economic welfare evaluation index. This paper also presents the change of national wealth by using the weak axiom of revealed preference theory. The result of the study shows that, China’s economic growth is not strongly dependent on exports. It is the export structure of labor intensive products with low price elasticity that mainly lead to the continuously decline of terms of trade in China. However the loss of welfare from the terms of trade’s decline is not enough to offset the benefits of the economic growth. Therefore there is no probability of “Immiserizing Growth” in China’s foreign trade.