Terms of Trade and Economic Welfare: Evidence from China Economy

His paper analyzes the changing trend and causes of terms of trade in China from year 1993 to 2010 and studies the overall movement in China's national wealth by introducing the concepts of Gross Domestic Income (GDI) and Trading Gains Rate (TGR).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 studies 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.