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China's and India's roles in global trade and finance - twin titans for the new millennium?

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Author Info
Matthieu Bussière () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Arnaud Mehl () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

This paper analyses the integration of China and India into the global economy. To this end, it presents estimates from a gravity model to gauge the overall degree of their trade intensity and the depth of their bilateral trade linkages, as well as selected measures of revealed comparative advantage and economic distance. The paper also reviews the key characteristics of the two countries’ domestic economies that are relevant to their global integration and analyses their financial linkages with the rest of the world. Four main fi ndings stand out. First, considering trade in goods, the overall degree of China’s trade intensity is higher than fundamentals would suggest, whereas the converse is true for India. Second, Chinese goods exports seem to compete increasingly with those of mature economies, while Indian exports remain more low-tech. Third, China’s exports of services tend to complement its exports of goods, while India’s exports are growing only in deregulated sectors, such as IT-related services. Last, China’s and India’s roles in the global financial system are still relatively limited and often complementary to their roles in global trade. JEL Classification: E44, F3, C5.

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Paper provided by European Central Bank in its series Occasional Paper Series with number 80.

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Length: 47 pages
Date of creation: Jan 2008
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Handle: RePEc:ecb:ecbops:20080080

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Keywords: China; India; global trade; gravity models; competitiveness indicators; global finance.;

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  1. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Lane, Philip R. & Schmukler, Sergio, 2006. "The International Financial Integration of China and India," CEPR Discussion Papers 5852, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003. "The currency union effect on trade: early evidence from EMU," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 315-356, October. [Downloadable!] (restricted)
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  4. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63. [Downloadable!]
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  5. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD, Economics Department. [Downloadable!]
  6. Ursel Baumann & Filippo di Mauro, 2007. "Globalisation and euro area trade: Interactions and challenges," Occasional Paper Series 55, European Central Bank. [Downloadable!]
  7. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July. [Downloadable!] (restricted)
  8. GERLACH, Stefan & Peng, Wensheng, 2006. "Output gaps and inflation in Mainland China," China Economic Review, Elsevier, vol. 17(2), pages 210-225. [Downloadable!] (restricted)
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  9. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  10. Eswar Prasad, 2004. "China's Growth and Integration into the World Economy: Prospects and Challenges," IMF Occasional Papers 232, International Monetary Fund. [Downloadable!]
  11. Fukunari Kimura & Hyun-Hoon Lee, 2006. "The Gravity Equation in International Trade in Services," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(1), pages 92-121, April. [Downloadable!] (restricted)
  12. Keith Head & Thierry Mayer & John Ries, 2007. "How Remote is the Offshoring Threat?," Working Papers 2007-18, CEPII research center. [Downloadable!]
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  13. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
  15. Barry Bosworth & Susan M. Collins, 2007. "Accounting for Growth: Comparing China and India," NBER Working Papers 12943, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2009. "Lessons for China from Financial Liberalization in Scandinavia," Working Papers 262009, Hong Kong Institute for Monetary Research. [Downloadable!]
  2. Johansson, Anders C., 2009. "China'S Financial Market Integration With The World," Working Paper Series 2009-10, China Economic Research Center, Stockholm School of Economics. [Downloadable!]
  3. Przemyslaw Kowalski, . "China and India: A Tale of Two Trade Integration Approaches," Indian Council for Research on International Economic Relations, New Delhi Working Papers 221, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
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  4. Daya Shanker & IKM Mokhtarul Wadud & Harminder Singh, 2008. "A Comparative Study of Banking in China and India, Nonperforming Loans and the Level Playing Field," Economics Series 2008_25, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
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