The Impact of China-Burkina Faso Trade on Burkina Faso Economic Growth

The impact of trade expansion of China on Burkina Faso's economy is analyzed in this work through these two channels: trade in goods and services, foreign direct investment. To capture the direct and indirect effects of Chinese trade, a computable general equilibrium model is used. The different simulations that have been used are gathered in groups. The first group includes an increase of the transfers from China to Burkina Faso by 10%, an increase of 5% of the stock of productive capital, an increase of 2% in the total factor productivity. The second group includes an expansion of the exports from Burkina Faso to China by 5%w; a decrease of international export prices of manufactured products plus an increase in international prices of export commodities; and a decrease of the international import prices of products from China. The simulation results show that the simulations of trade expansion have led to an increase of domestic prices, exports and imports from China. In addition, the effect on economic growth, value added and household’s welfare is low. Regarding the first group of simulations, the results show a decline of domestic prices, and an increase of exports and a decrease of imports. More FDI inflows induce a raise of economic growth equal to 1.90%, of total labor demand 0.08% and an increase of the average well-being of household by 1.41%. The majority of the population in Burkina Faso is cotton farmers and they are those who welfare raise the more 1.81. the impact of this expansion of Chinese presence and trade on economic growth and employment in Burkina Faso.


INTRODUCTION
For the past two decades, China has become a major player in the global economy. China's strong economic growth has been accompanied by the acceleration of its foreign trade, aid and foreign direct investment. China's transition from developing countries to an emerging country is an example of development for developing countries beyond the technical and financial support it has offered them for more than a decade. China's strong presence in world trade is linked to the need for energy resources to fuel economic growth and an expanded market to export manufactured goods and build investment relationships (Renard, 2011). Thus, China is on both sides of the international market, both on the supply side and the demand side. According to statistics from the 2013 WTO World Trade Report, China is the world's leading merchandise exporter (11.2% of world merchandise exports) and the world's second largest merchandise importer behind the United States (9.8% of world imports) (WTO, 2013). Also, in the year of 2015, China stayed the first. China exported goods worth $2.21 trillion across the world making it the largest exporting country; beside China, US is the largest exporting country nation with $1.50 trillion exported merchandises across the globe. When we have a glance on the year 2017, we also notice that China is still the leading country with $2.263 trillion and the United States comes second with $1.546 trillion of exported goods.
In addition, China is the second largest importer of petroleum products after the United States. To meet the energy demand, China has diversified its suppliers. Thus, Africa has become a sought-after area because the African continent holds 8.9% of the world's oil reserves and accounts for 11% of world production (Lafargue, 2005). Africa is also an enlarged market for Chinese manufactured goods with 18% of the world's population in 2017 (United Nation) which is about 1.230 billion; according to United Nations estimates, the population of Africa may reach 2.5 billion by 2050 (about 26% of the world's total) and nearly 4.5 billion by 2100 (about 40% of the world's total). The presence in Africa is characterized by trade, FDI, official development assistance, technical assistance, governance global, migration and the environment. Thus, studies argue that Chinese growth will affect African economies differently, depending on the complementarity of their trade, the competitiveness of their industries, the degree of diversification of their economy and the supply capacity of their economy between China and African countries carries risks and opportunities. The objective of this work is to evaluate the direct and indirect effects of Chinese growth on Burkina Faso's economy. More specifically, to evaluate the effects of China's trade expansion on household growth, employment and welfare in Burkina Faso. Studies that have analyzed the impact of China's growth on developing and developed economies are descriptive in nature (Zafar, 2007, Khan Mohammad, 2014 or partially balanced (Renard, 2011, Villoria, 2009).

RESEARCH QUESTIONS
After revising this topic by his background and the literature review I came out with some specific questions that are relevant for the topic and for a better knowledge about the impact of china's expansion on Burkina Faso growth, employment and poverty in Burkina Faso. The study will assess the impact of increased FDI, China's official development assistance, the impact of imported Chinese products and the change in international import and export prices on the income distribution, wellbeing and poverty in Burkina Faso. So now the different questions that appears to us are: How the imported products of China can affect the economy of Burkina Faso? How China is affecting Burkina Faso on his economic aspect and his development as well? What are China's effects on the existing industries? The effect on the willingness to create an industry, effect on the employment rate… Is there any direct relation between China and Burkina Faso in term of impact? These are the questions that I will try to answer by this paper.

RESEARCH OBJECTIVES
This study aims to assess the impact of China's economic and trade expansion on growth, employment and poverty in Burkina Faso. More specifically, the study will assess the impact of increased FDI, official development assistance from China and the change in international import and export prices on the income distribution, wellbeing and poverty in Burkina Faso. Given the complexity of the issue of aid, FDI and trade in economies, to take into account the direct and indirect effects of these different economic variables, the appropriate analytical tool is the Computable General Equilibrium model. The approach we develop is a static CGE model to analyze short and medium term effects. This study is in the context of major business reforms in Burkina Faso since 2011, through the SCADD. The SCADD contains all of the sectoral development programs, the Rural Development Strategy (RDS), trade liberalization, improving the business climate, promoting exports, developing growth poles, combating poverty.

PROPOSED HYPOTHESIS
As far as the hypothesis are concerned, we based on our research questions and came out with the fact that, Known that China is one of the greatest country in the world, it obviously has impact on others countries. So by this paper we want to find out how far it can impact others, specially Burkina Faso Also, based on the rate of Chinese exported products all over the world and especially in Burkina Faso, and also based on their prices, we can say that Chinese products are very useful and beneficial for Burkina Faso to import from China. Then it can also make profit by using the comparative advantage.

RESEARCH METHODOLOGY
For this work to be well done, a good methodology should be used in order to get the best results closed to the real situation. So, for that we have planned to approach the citizens of Burkina Faso with a questionnaire that we will write. We will also base our research on some data published by international organizations such as World Bank, International Monetary Fund (IMF), World Trade Organization (WTO) … The study will be conducted in Burkina Faso. And focus more on people who buy and use Chinese products; we will also target the industries which produce some products which are also imported in Burkina Faso, then we may analyze the effect on those industries.
As we know, studies that have analyzed the impact of China's growth on developing and developed countries' economy are descriptive in nature. Partial equilibrium methods can only capture the direct impacts of Chinese growth. In fact, the change in the level of international prices, foreign investment and development aid have important general equilibrium effects. In this context, the computable general equilibrium model is the appropriate tool for capturing the direct and indirect effects of China's growth. In addition, another advantage of the CGE model is its ability to assess the effect of an exogenous shock on household welfare. To do this, the multi-sectoral computable general equilibrium model will be used. This method is a static computable general equilibrium (CGE) model and is based on the standard PEP1.1 EGC model developed by Decaluwé et al. (2010) to which we will incorporate certain specificities.

RECHEARCH SIGNIFICANCE
This research paper is aimed to find out the level of impact that China has on Burkina Faso economic growth. By this research we will try to identify exactly how household are impacted when China decide to change to prices of goods. As China own an important share of the market, which means that a little variation of each price may affect considerably the different household in Burkina Faso. And my purpose is to identify the degree of that impact. Trade between Burkina Faso and China concerns extractive products, cash crops (cotton, sesame, cereals, others oilseed products), manufactured goods (textiles, telephones and accessories, electrical products), transport products (vehicles, motorcycles, spare parts) and pharmaceuticals. As a result, the cash crop, extractive and manufacturing industries would experience the effect of expanding Chinese demand for primary product and the supply of manufactured goods. According to the African Development Bank's 2016 statistical yearbook, Burkina Faso's exports (as a percentage of total exports in the country's value) are dominated by gold (43.66%), cotton (28.23%), seeds and seeds. oleaginous fruits (5.64%), (ADB, 2016). According to the statistical yearbook of the African Development Bank (ADB) of 2011, Burkina Faso's main import products (as a percentage of the country's total imports) are petroleum products (21.54%), rice (4.68%), medicines (4.59%), hydraulic cement Cotton, gold and oilseed products are the main products demanded in Burkina Faso. However, the literature shows that China's economic growth affects international import and export prices and the volume of exports.

LITERATURE REVIEW
For the methodology, there are also some authors who have written papers about similar topic for others Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 11, No.22, 2020 countries and the results are very good and interesting. Computable general equilibrium models have often been used to analyze the effects of economic and social policy reforms and exogenous shocks in developing economies. Many studies assess the impact of FDI inflows, official development assistance and trade on household welfare. It is the case of Agenor et al. (2008), who use a dynamic CGE model to a sector, a household with a highly developed government sector. Most aspects of Dutch Disease are excluded from the design of their model as the highly aggregated configuration does not account for sector reallocation. Nevertheless, they conclude that the negative effects of aid could be avoided if the supply response is sufficiently large and the recipient country's absorptive capacity is sufficiently high. However, the underlying model with one sector and one representative household is clearly restrictive. Clausen and Schürenberg-Frosch (2009), develop a static CGE model for the Zambian economy with eleven production sectors and five households. They distinguish several effects of international aid, that is, the aggregate effect of production, the effect in terms of international trade, the effect of welfare and distribution, the effect on demand-side expenditures and the supply-side effect on productivity. They see the aid as a transfer from the rest of the world to the government. They assume that aid is a financial flow that the government can use for its own spending or make transfers to the private sectors. They propose different mechanism of the use of aid by the government. They introduce a factor productivity function from public investment. They find that growth and trade policies do not improve the well-being of the poor in the short term, but transfer policies contribute immediately to the well-being of the poor.
Estache et al. (2009), show from a CGE model where foreign aid is modeled from transfers from the rest of the world to the government and is used to finance public infrastructure, that financing public infrastructure through foreign aid produces Dutch disease. They show that the size of the effect depends on the type of financing, but the effects on growth mitigate the negative effects. Dissou and Didic (2011) show, from a CGE model, the impact of different financing mechanisms for public infrastructure. They use the stock approach to model public capital in firm technology and consider two ways of financing increased public investment in infrastructure: domestic financing through taxes and foreign aid financing. . They conclude that public investment in infrastructure leads to a problem, but increasing the production capacity of firms reduces the severity of the phenomenon.
Applications Finally, the study on the effects of China's economic and trade expansion on African economies in EGC is that of Sandrey and Edinger (2009) applied in South Africa and focusing only on trade in agricultural products between South Africa and China using the GTAP model. Their model is static and they give no specification of the model in terms of trade. However, they deal with the liberalization of trade between South Africa and China through a reduction of tariffs. Finally, the results of the simulations show an improvement in the well-being of the population of South Africa. In this paper we develop a computable general equilibrium approach that allows analysis of the effect of foreign direct investment (FDI), official development assistance and trade.

SETTING THE MODEL
To analyze the impact of China's economic and trade expansion on the economy of Burkina Faso we develop a static CGE model. Balance is reached on each market through the variation of relative prices and the quantities offered and demanded. The exchange rate is fixed and is the model currency. We assume that Burkina Faso is a small country and has no influence on international prices, these are fixed. We consider that the skilled and unskilled labor market is in full employment of the factors of production but, we consider that the nominal wage of the two categories of work is fixed in the model. In addition, we consider the sectoral capital stock, the current account balance, the transfer from China to the government, government spending and the change in fixed stock in the model. Finally, transfers from the rest of the world are modeled according to the areas of origin. The analysis of household well-being is done through the equivalent variation.

DATA
The data used to calibrate the static EGC model starts from the 2009 SAM constructed by Cockburn et al. (2012) . The 2009 SAM includes two types of workers (skilled and unskilled), one household, 24 products and 17 industries. The products are grouped into two main categories, named food products (corn, rice, millet Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 11, No.22, 2020 sorghum and other cereals, fruit vegetables and tubers, fatty oils and sugar, condiments and salt, meat chicken fish eggs and dairy products, and drinks and coffee ) and non-food products (forestry, mining, cotton, electricity gas and water, petroleum, other manufactured goods, construction work, trade, transport services, post and telecommunications services, financial services, other market services, services of cycle 1 education, cycle 2 education services, health and social work services, and other public administration services).

DESCRIPTION OF THE SIMULATION SCENARIOS
The scenarios simulated in this study are based on hypotheses for the evolution of the transmission variables of China's trade expansion in Burkina Faso and on the results of previous empirical studies. According to Villoria (2010), Chinese exports of manufactured products have significantly reduced world prices for manufactured products on the main markets. In addition, Villoria, Hertel and Nin-Pratt (2010) find that in an aggregate sense, demand for primary agricultural products from China has resulted in a moderate increase in the prices of agricultural products on the international market. In light of previous work, we postulate a set of scenarios of simulations of China's growth on Chinese international import and export prices. And so, we assume that the effect of the expansion of exports of Chinese manufactured goods is accompanied by a fall in international import prices of Chinese manufactured goods of around 2%. This also allows us to hypothesize a drop in international export prices to China of manufactured products by 2%. The empirical literature on Chinese growth shows that China's economic growth has an impact on the prices of goods and services. According to Villoria (2009), China's growth has led, on the one hand, to higher international food prices and, on the other, to increased exports of agricultural products from developing countries. Roache (2012) finds that overall economic activity in China has a significant short-term impact on the price of oil and base metals. He concludes that the impact on China's rising commodity prices of growth is less than the effect of economic activity in the United States. For Villoria (2009), the increase in prices of agricultural products in economies such as Asia and European countries is between 1.5 and 2.5 percentage points. In addition, the work of Borensztein and Reinhart (1994) shows that an increase of one percentage point in world industrial production leads to an increase in prices of around 1.5 to 2%. Based on empirical evidence, we hypothesize an increase in international export prices of agricultural products by 2% driven by the increase in Chinese demand for agricultural products. According to the study by Paulo et Lui (2013), an increase (or decrease) of 1 percentage point in the growth of Chinese domestic investment is associated with an average increase (or decrease) of 0.6 percentage point in the growth in exports from Sub-Saharan Africa. According to Villoria et al. (2009) the impact of a reduction in Chinese import spending on agricultural products reduced agricultural exports from Malawi and Mozambique by 3.58%. Similar figures are observed for Tanzania (-5.15%), Zambia (-4.01%) and SACU (-4.01%). According to Roache (2012), China is increasingly present in the market for base metals and agricultural raw materials. Under these conditions, China's import spending on agricultural products and base metals will increase. Assuming an increase in import spending by China; we simulate in the context of Burkina Faso an increase in exports from Burkina Faso to China by 5%.
Another important channel for China's trade expansion in Africa is development aid and foreign direct investment. The government of Burkina Faso has adopted an attractive foreign direct investment policy through tax facilities. In this context, Burkina Faso and the Chinese government signed an investment promotion and protection agreement in 1998, which was ratified in 2003. A study on the presence of China in Burkina Faso by Khan Mohammad (2014) shows the presence of Chinese multinationals in Burkina Faso in fields such as public works, commerce and in the telecommunications sectors. We postulate the hypothesis of an increase in Chinese foreign direct investments in Burkina Faso. In the model we considered that the entry of FDI would increase the existing capital stock. In addition, the arrival of new efficient, competitive foreign firms would force local businesses to improve productive performance and the quality of production by adopting new technologies and new ideas. In addition, development aid is also one of the important aspects of China's presence in the countries of Sub-Saharan Africa. With the aim of helping African countries, China has signed with four African cottonproducing countries (Benin, Burkina Faso, Mali and Chad) an aid agreement for cotton production and processing. Referring to the evolution of aid received by Burkina Faso representing 3.6% of GDP in 2012 Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 11, No.22, 2020 according to the IMF report of 2013 and according to estimates made, Chinese aid to Burkina Faso represents 0.23% of GDP in 2012. We assume a 10% increase in transfers from China to the government of Burkina Faso in accordance with China's commitments to Burkina Faso. However, the establishment of Chinese multinationals as well as public investments in the agriculture (cotton) sectors would contribute to the increase in the stock of productive capital in the agriculture, construction, telecommunications, trade, transportation and manufacturing. These sectors are the main sectors benefiting from Chinese intervention in Burkina Faso. We assume that transfers from China will be used for public investments (irrigation, transport…). The empirical study by Benin et al. (2009) shows that a 1% increase in public spending on agriculture in Ghana is associated with a 0.15% increase in the productivity of agricultural labor. In addition Diao et al. (2010) find that a 1% increase in agricultural spending is associated with a 0.24% annual increase in total factor productivity in the agricultural sector in Nigeria. Based on empirical evidence we hypothesize that the increase in transfers and the capital stock would allow an average increase in total factor productivity of 2% in Burkina Faso. According to the IMF (2013) FDI entering Burkina Faso in 2011 and 2012 represented 0.4% of GDP. According to UNCTAD statistics for 2008 and 2012, inward FDI flows are estimated at $ 714.25 million26. In addition, the stock of FDI in 2012 is estimated at 430.7 million dollars. Indeed, the destination of Chinese FDI is in the telecommunications sector (ZTE and Huawei), transportation, manufacturing, hotels and retail. To capture the effect of Chinese FDI, we assume an increase in the productive capital stock by 5% in the agriculture, construction, telecommunications, trade, transport and manufacturing industries. The description of the simulation scenarios is presented in Table 3. Table 1: Simulation group First simulation group Simulation 1a Increase in transfers from China to Burkina Faso by 10%.

Simulation 1b
A 5% increase in the productive capital stock in the sectors: agriculture, transport, telecommunications, extraction, manufacturing industries and trade.

Second simulation group Simulation 2a
Product exports (cotton, extraction, fruit and vegetable, livestock products, oil) increased by 5% from Burkina Faso to China.

Simulation 2b
A 2% drop in the international export price (of products: livestock products, oil) + an increase of products (extraction, cotton and Fruit and vegetables).

Simulation 2c
A 2% drop in China's international import price of products: transportation, construction, other services, condiments and salt and other manufactured goods. Source: Organized by the current thesis

DISCUSSION OF THE SIMULATION SCENARIOS
This section presents a comparative analysis of the different simulation scenarios. The results show that China's trade expansion analyzed by the increase in exports, the fall in international import prices of manufactured goods and an increase in international export prices of primary products has a significantly weak effect on the selected variables. The effect of changes in international import prices from China is appreciably small but negative for the various economic variables. The effect of the variation in international export prices to China (simulation 2b) is generally positive but the sensitivity is negative for public consumption. The total results found at the end of each simulation represent the level of impact of the simulation on the economy of Burkina Faso. That is to say that when the total is negative, there is a negation impact on the economy and when it is positive, there is a positive impact on the economy.

RESULTS OF THE STUDY
This study develops a multi sectoral static CGE model to analyze the effects of China's trade expansion on the economy of Burkina Faso. The model is used to assess the effect of variation in exports volume, variations in China's international prices in import and export, variation of transfers from China to the government of Burkina Faso and variation of Chinese foreign direct investment in Burkina Faso, also capture by the change of the productive capital stock and the productivity of the factors of production.
An increase in transfers from China to the Burkinabè government has had a positive impact on the demand for capital goods as well as on real household consumption. The results show that the sectors producing capital goods demand for labor has increased. This alternative allows an increase in economic growth and well-being of households but, this results in an increase in domestic consumption prices. The effect of the increase in the stock of productive capital is greater. Economic growth increases by 1.90% and household well-being increases by 1.41% on average. The impact on well-being is influenced by the fall in consumer prices. The increase in total factor productivity has had a positive impact on growth, employment and well-being, but the effect is relatively small. However, the reestablishment of diplomatic ties between Burkina Faso and China could bring an interesting prospect in terms of investment in the agricultural and non-agricultural private sectors. Improved cooperation may have greater results in terms of well-being and growth.
Increased product exports to China as well as lower international export and import prices from China are improving government revenue and economic growth. For all simulation alternatives, household well-being improves. This improvement is driven by the improvement in household income. The effect is greater if China's growth does not lower international export prices. These results support the idea that, in the sectors for which China and African countries compete, the increase in the volume of cheaper Chinese products leads to a drop in the output of African economies. Note that this simulated policy causes an increase in the price level of goods and services. The improvement in the level of household income could not counter the rise in the price level. The consequence of the higher prices is the higher cost of living.
The impact of all of the Chinese growth simulation options on household well-being in Burkina Faso is positive. The welfare gain is higher for cotton farming households and food crop farming households. We note that the effect of trade expansion on Burkina Faso is small. These effects are explained by the low volume of exports from Burkina Faso to China. The effects could be greater if trade relations became more important.
It can be noted that an intervention that improves the production and real consumption of households would improve well-being and reduce the incidence of household poverty. Trade relations between Burkina Faso and China will only have a significant positive effect if Chinese growth boosts exports. Local products must be processed which could allow development in order to export finished products. As it stands, the benefits of trade relations between Burkina Faso and China are low. However, it should be noted that China's trade expansion on the world market is having an impact on the Burkinabè national market through the increase in domestic supply prices and therefore an increase in the consumer price index. It is therefore necessary to manage the resources of exports of primary products to support investments in production support sectors (road, communication and agricultural production infrastructure). This recommendation is supported by the fact that China's trade expansion in Burkina Faso analyzed by an increase in the stock of productive capital and in the productivity of the factors of production leads to greater production, to dictated job creation by the positive effect on growth. In order to obtain growth results from China, it is therefore important to attract Chinese FDI into the production and production support sectors (agriculture, industry and infrastructure). To do this, it will be necessary to strengthen the investment protection agreements that exist in Burkina Faso and China since 2003 by also granting investment facilities. This requires a profound improvement in the business climate. All this necessarily involves the re-establishment of the ties of cooperation between China and Burkina Faso.

CONCLUSION
China is today a country whose economy and importance cannot be ignored. China's rapid development has created an unprecedented situation in the world and challenges almost all existing models and theories of development. The rise of "made in China" products has for a long time been very beneficial for the development of China and extends economically as well as politically. However, the changes underway in China's foreign trade are dictated by the new international environment, where global demand is shifting towards developing countries, but also by China's internal transformations and the evolution of its development model.
From a poor and rural country in the 1970s, China has become the world's second largest economic power, if not the first according to some considerations. Weighing 15% of global GDP and accounting for more than 30% of world growth, China is now a giant that can not be ignored. With the isolationist shift in the United States and sluggish growth in Europe, China will play a major role as a leading economic player in the coming years.