A Case for Enhanced China and India Economic Cooperation Post Global Economic Crisis: a Trade Bloc for Further Economic Growth

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Due to inherent spatiality of trade flows, and especially considering the influence of distance on trading level between two countries, it becomes an element of important inquiry for contemporary human geographers, focussed on international trade and commerce (Poon, 2009). Empirical studies using gravity equation have shown that trade flows decrease with distance (Rosso-Hansberg, 2005), and thus in general trade is higher between geographically proximate countries, for example, the level of trade between United States and Canada, which boasts the world’s largest bilateral trade (Poon, 2009). Krugman has shown that countries trade more with their neighbors than distant countries arising from lower transport and transaction costs (ibid), but somehow it seems to be not the case for the neighbours China and India. The global economy has been characterized by major shifts in the pattern of international trade since the end of World War II (McDonald, Robinson, Sherman, & Thierfelder, 2008) - there has been tendency for groups of countries to create regional economic blocs to stimulate the process of market integration and trade (Cumbers, 2009). Over the post war period the global trade has expanded faster than the global GDP (McDonald, Robinson, Sherman, & Thierfelder, 2008). There are two contrasting perspectives of regional integration: the first view emanates from mainstream economics, which highlights that reduction of trade barriers will facilitate a more efficient use of resources – productivity will increase, prices and costs will fall, stimulating greater growth and wealth overall (Cumbers, 2009). While the alternative perspective is associated with those working in Marxist and critical political economy traditions is that increased economic integration without social and political constraints is likely to lead to more uneven and differentiated development between countries and localities (ibid). Countries have enhanced economic cooperation through interactions of regional arrangements such as: (a) 1994 North American Free Trade Area (NAFTA); (b) 1965 European Economic Community, and currently the European Union (EU); and (c) 1992 Association of South-East Asian Nations (ASEAN) Free Trade Area (AFTA) (Poon, 2009). Till 1970s the world trade was essentially bipolar – between North America and Europe, and after that the bipolar system splintered into three large trade blocs: (a) a bloc anchored by the United States, consisting of North America and Central America (b) the European Union and its periphery; and (c) East and Southeast Asian countries (McDonald, Robinson, Sherman, & Thierfelder, 2008) – and these three, often called as the ‘global triad’, have been dominating the global economy (Cumbers, 2009). There are two schools of thoughts related to trade blocs. The first school is led by liberal economics who contend that trade blocs are a suboptimal solution to govern economic interactions and relations compared to free trade and multilateralism, while on the other hand, the second school of thought considers trade bloc as an efficient spatial mechanism to manage and regulate economic and political spaces (Poon, 2009). Countries will benefit from such an arrangement, which forms trade blocs based on natural geography (ibid). Two distinct patterns of regional integration can be identified: ‘regionalism’ (formal government to government agreements such as that of European Union) and ‘regionalization’ (less constructed and market driven form of integration, such as the East and East Asian economies follow a most-favored-nation (MFN) liberalization, but without any formal cooperation agreements throughout most of the period) (McDonald, Robinson, Sherman, & Thierfelder, 2008). South Asia reflects somewhat of a different trajectory than that of East and South East Asia, depending more on formal agreements, so more on ‘regionalism’ than on ‘regionalization’ (ibid). Forces associated with intensifying...
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