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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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  • Matthieu Bussière
  • Arnaud Mehl

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:ecb:ecbops:20080080

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

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Cited by:
  1. Fidrmuc, Jarko & Korhonen, Iikka & Bátorová, Ivana, 2008. "China in the world economy: Dynamic correlation analysis of business cycles," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2008, Bank of Finland, Institute for Economies in Transition.
  2. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2009. "Lessons for China from Financial Liberalization in Scandinavia," Working Papers, Hong Kong Institute for Monetary Research 262009, Hong Kong Institute for Monetary Research.
  3. João Amador & Sónia Cabral, 2009. "Portuguese International Trade in Services," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  4. Anders Johansson, 2010. "China's financial market integration with the world," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(3), pages 293-314.
  5. Johansson, Anders C., 2010. "China’s Growing Influence in Southeast Asia - Monetary Policy and Equity Markets," Working Paper Series, China Economic Research Center, Stockholm School of Economics 2010-16, China Economic Research Center, Stockholm School of Economics.
  6. 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.
  7. Przemyslaw Kowalski, 2008. "China and India - A Tale of Two Trade Integration Approaches," Trade Working Papers 22170, East Asian Bureau of Economic Research.

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