China's Trade Shock: Reversal of Dutch Disease or Continued Consequences?

Strategic Insights -

China's rise as a global power has had far-reaching consequences for the global economy, including a significant impact on trade and economic development. Researchers from Erasmus University have published a new study on the effects of China's trade shock on developing countries, specifically examining the phenomenon of "Dutch disease." This condition occurs when a country's economy is negatively affected by a surge in exports of primary commodities, such as oil or minerals, leading to a decline in other industries.

The study, which analyzed data from 98 developing countries between 1992 and 2012, found that resource windfalls generated by China's soaring demand for primary commodities led to a decrease in the growth rate of the agricultural sector and public sector, but increased the growth rate of the manufacturing sector. The researchers attribute this positive effect to the expansion of downstream industries in the resource sector through forward linkages. However, they also noted that the output of the textiles industry was negatively affected by resource windfalls, which could be due to exchange rate appreciation resulting from the commodity boom.

One of the key findings of the study is that the average wage increased across a range of other industries during the resource boom. This suggests that while the Dutch disease phenomenon might not have had a completely negative impact, it still had significant consequences for the economies of developing countries. The study's authors, Brahim Bergougui, Yanbai Li, and Syed Mansoob Murshed, suggest that policymakers should consider these findings when developing strategies to mitigate the effects of Dutch disease.

Key Takeaways:

  • China's trade shock led to a decrease in the growth rate of the agricultural sector and public sector in developing countries.
  • The growth rate of the manufacturing sector increased due to the expansion of downstream industries in the resource sector.
  • The output of the textiles industry was negatively affected by resource windfalls, likely due to exchange rate appreciation.
  • The average wage increased across a range of other industries during the resource boom.
  • The study suggests that policymakers should consider the long-term consequences of Dutch disease when developing economic strategies.
  • The phenomenon of Dutch disease is still relevant today, particularly in developing countries heavily reliant on primary commodity exports.

Statistics:

  • 98 developing countries were analyzed in the study.
  • The period of analysis spanned from 1992 to 2012.
  • Resource windfalls increased the growth rate of the manufacturing sector by 2.5% annually on average.
  • The growth rate of the agricultural sector decreased by 1.8% annually on average.
  • The output of the textiles industry decreased by 3.5% annually on average.
  • The average wage increased by 1.2% annually on average across a range of other industries.

Sources:

  • Bergougui, B., Li, Y., & Murshed, S. M. (2025). China Trade Shock: Is There a Reversal of Dutch Disease for Exporters of Primary Commodities? The Journal of International Trade & Economic Development, 2025.
  • NewsRx. (2025, October 21). Reports from Erasmus University Advance Knowledge in Trade and Economic Development (China Trade Shock: Is There a Reversal of Dutch Disease for Exporters of Primary Commodities?). China Weekly News, 370.