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The rise of China and India: blessing or curse for the advanced countries?

  • Stracca, Livio

This paper evaluates the impact of the rise of large emerging manufacturing exporters such as China and India on economic growth in advanced countries. After illustrating the possible theoretical channels, I estimate a growth regression based on 3-year average data augmented with country-specific measures of import and export competition from China and India using instrumental variables. Stronger import competition from China and India leads to stronger income growth in advanced countries, but to a loss of manufacturing jobs. A more flexible labour market, lower concentration of employment in manufacturing and pre-existing trade links with China and India help advanced countries to maximise the growth dividend resulting from their rise in world export markets. JEL Classification: F02, F15

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Paper provided by European Central Bank in its series Working Paper Series with number 1620.

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Date of creation: Dec 2013
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Handle: RePEc:ecb:ecbwps:20131620
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  1. Leonardo Iacovone & Ferdinand Rauch & L. Alan Winters, 2010. "Trade as an Engine of Creative Destruction Mexico experience with Chinese competition," Working Paper Series 0510, Department of Economics, University of Sussex.
  2. Peter K. Schott, 2006. "The Relative Sophistication of Chinese Exports," NBER Working Papers 12173, National Bureau of Economic Research, Inc.
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  5. Omar Licandro & Antonio Navas-Ruiz, 2007. "Trade Liberalization, Competition And Growth," Working Papers halshs-00354236, HAL.
  6. Licandro, Omar & Navas-Ruiz, Antonio, 2007. "Trade Liberalization, Competition and Growth," CEPR Discussion Papers 6500, C.E.P.R. Discussion Papers.
  7. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  8. Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajona, 2008. "Trade liberalization growth and productivity," 2008 Meeting Papers 789, Society for Economic Dynamics.
  9. Baldwin, Richard, 2012. "Global supply chains: Why they emerged, why they matter, and where they are going," CEPR Discussion Papers 9103, C.E.P.R. Discussion Papers.
  10. Newbery, David M G & Stiglitz, Joseph E, 1984. "Pareto Inferior Trade," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 1-12, January.
  11. Nicholas Bloom & Mirko Draca & John Van Reenen, 2011. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," CEP Discussion Papers dp1000, Centre for Economic Performance, LSE.
  12. Ippei Fujiwara, 2013. "The global impact of Chinese growth," Asia Pacific Economic Papers 399, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  13. Anna Lipínska & Stephen Millard, 2012. "Tailwinds and Headwinds: How Does Growth in the BRICs Affect Inflation in the G-7?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 227-266, March.
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