Date of Graduation

5-2024

Document Type

Thesis

Degree Name

Bachelor of Science in Business Administration

Degree Level

Undergraduate

Department

Economics

Advisor/Mentor

Farmer, Amy

Abstract

This paper seeks to examine and provide a possible explanation for economic anomalies in Hong Kong following its handover to China. Hong Kong was on a 99-year lease to the United Kingdom from China before being handed back over July 1st, 1997. Due to the “one country, two systems” policy espoused in the handover agreement that was to be implemented for fifty years, this event marks a rare natural experiment of a peaceful regime change without a significant change in governance. This paper seeks to understand the impact of the act of regime change on selected key macroeconomic indicators using Chow tests to examine the data for structural breaks. In addition, the paper examines the averages of these variables in the years preceding and years after 1997 to further understand possible changes. The paper engages in significant literature review around the behavior of the Chinese government prior to the handover of Hong Kong and integrates this into a hypothesis to explain why macroeconomic variables in Hong Kong saw changes when the structure of governance and in particular its economic system saw very little change. The paper advances the idea that expectations surrounding a regime change may cause short run fluctuations in macroeconomic indicators as market participants make their decisions on the basis of those expectations. The implications of this idea are explored especially in how if true this idea provides a blueprint for groups to influence economic behavior through their own actions and signaling prior to that group attaining authority in a region or nation.

Keywords

China; Expectations; Foreign Direct Investment; Unemployment; Inflation

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