Chapter 1: Cross- Strait linkages: historica perspective and empirical evidence
In this chapter we detail the evolving economic ties between mainland China and Taiwan and provide an up- to- date picture of the trade and investment flows between the two economies. We assess macroeconomic interdependence between mainland China and Taiwan in terms of an array of output, price, money, and interest rate measures for each economy. This enables us to determine the extent to which the trade and investment nexus has been reflected in measurable economic symbiosis. We explore the interrelationship between our mainland China and Taiwan variables using data from January 1994 through April 2011. Our examination includes causality testing as well as consideration of a possible cointegrating relationship between the mainland China and Taiwanese series. We also allow for a possible structural break associated with the onset of the global financial crisis. Although some of the indicated effects of mainland China on Taiwan may well reflect China’s influence on world markets generally, in addition to direct transmission effects (Yang and Shea, 2005), the empirical results generally seem consistent with the ties between the two economies suggested in trade and capital flow data. The idea of a unified ‘Greater China’ region including Taiwan as well as mainland China and Hong Kong indeed seems to be emerging economically in spite of the remaining political impediments.
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