Crouching Tiger, Hidden Dragon: What are the Consequences of China's WTO Entry for India's trade?

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.One of the most significant recent developments in world trade has been the entry of China into the World Trade Organization (WTO). This paper examines the implications of China's WTO accession for India's trade, using both econometrics and computable general equilibrium (CGE) models. The paper analyzes how India stands to lose or gain from China's WTO entry in terms of both the direct and competitive channels. JEL Classification Numbers: F14

China and India: An Era of Escalating Economic Interaction

“…Cerra et al (2005) also constructed a new index that measured the extent to which two countries competed in world markets based on the similarities of composition of their trade. In terms of production of textiles, China and India are also the largest and the second largest in the world, respectively.…”

“…General equilibrium modeling using the Global Trade Analysis Project database revealed that India will likely experience a fall in economic welfare (Cerra, et al, 2005), along with a fall in the GDP by approximately US$359m over the shock period (2010). During the early period of the twentieth century, China and India remained aloof and standoffish because both were engrossed in their own political and social problems.…”

“…Using 6-digit Harmonized System (HS) industry data from the COMTRADE data tapes of the United Nations,Cerra et al (2005) constructed several trade indices to analyze the impact of China's trade expansion on India's trade and welfare. WTO accession has entitled China to MFN treatment from all its trade partners, who lifted, or are phasing out, all the restrictions and quotas on China's exports.…”

State, Society and International Relations in Asia

“…Several simple quantitative indicators, such as the Herfindahl index of specialisation, the Revealed Comparative Advantage, the Index of Trade Competition, the Trade Intensity Index, and the Trade Propensity Index have been used to ascertain likely gainers and losers and the extent of trade creation and trade diversion (World Bank 2002;Cerra, Rivera & Saxena 2005). Based on these indicators, one may argue that over all, major trade blocs such as the European Union and the NAFTA have improved the economic welfare of member as well as non-member countries (Schiff & Winters 2003).…”

The changing pattern of foreign trade specialization in Indian manufacturing

“…At the same time, despite the opening up of trade since the reforms of the 1980s and 1990s, India can still be regarded as a relatively closed economy (Cerra et al, 2005;Schiff, 2005). In 2005, it accounted for only about 1 1 / 2 per cent of the global trade in good and services.…”