A Comparative Analysis of Balance of Payments of India and China

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China and India: a Comparison of Two Trade Integration Approaches By Przemyslaw Kowalski Discussion Matthieu Bussière
European Central Bank

New Delhi, 7 December 2007

Note: The views expressed in this presentation are those of the author and do not necessarily reflect those of the ECB.

Main assessment of the paper
• A very nice overview of a key topic
Useful comparison China/India A valuable effort to collect relevant data

• •

Two main assets: discussion of trade policy and model simulations Main suggestion: refocus the paper on the latter – Other suggestion: flesh out the conclusions

Three possible views on India’s development
1. Is India a new China in the making ? India = L10(China) 2. Is India simply in a lower league ? India < China 3. Is India converging towards a different model ? Lim (India) ≠ Lim (China)

India = L10(China)
Exports of goods and services relative to GDP
(%)

50 40 30 20 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006(e) Sources: World Economic Outlook and ECB staff calculations.

China India (from 1990)

No. 1 challenge for future growth: education
Human capital indicators
(%, in 2004)

100 80 60 40 20 0 Adult literacy rate
Source: World Development Indicators.

China

India

Secondary school enrolment rate

Focus of the discussion on three main topics

1. Trade openness and the effect of trade policy 2. The role of services (for India, China and RoW) 3. Trade specialisation (high-tech v. low-tech) • • Not covered: (Net) trade integration …and what to conclude from that ?

Focus of the discussion on three main topics

1. Trade openness and the effect of trade policy 2. The role of services (for India, China and RoW) 3. Trade specialisation (high-tech v. low-tech) • • Not covered: (Net) trade integration …and what to conclude from that ?

Chart 3 p. 28: share in world exports
China and India, shares in world exports and world output
(Percentage of China and India's exports and output in world exports and output)

8 7 6 5 4 3 2 1 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 0

China, share of world exports

India, share of world exports

Results: overall degree of trade intensity
China and India, shares in world exports and world output
(Percentage of China and India's exports and output in world exports and output)

8 7 6 5 4 3 2 1 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 0

China, share of world exports China, share in world output India, share in world output India, share of world exports

Comparison China/India openness

• •

What explains the striking difference between China and India in terms of trade integration? Need to control for obvious elements gravity model

• •

Role of regional trade integration Role of trade liberalization / trade policy

0.0

0.5

1.0

1.5

2.0

Gravity model: overall degree of trade intensity

USA S. Korea Japan Germany Hong Kong Singapore China Netherl. Russia Malaysia Italy Switzerl. Brazil Belgium Sweden UK Australia France Thailand Chile Czech Rep. Hungary Norway Canada Finland Indonesia Spain New Zeal. Poland Turkey Austria Ukraine Denmark Argentina Bulgaria Mexico India Slovenia Romania Portugal Ireland Cyprus Slovakia Morocco Ecuador Philippines Peru Colombia Estonia Greece Malta Croatia Lithuania Uruguay Luxemb. Latvia Belarus Macedonia Moldova Bosnia-H. Albania

-2.5

-2.0

-1.5

-1.0

-0.5

China Countries well integrated India Least integrated countries

Bussiere and Schnatz, 2006

0.0

0.5

1.0

1.5

2.0

2.5

Canada Peru Australia Indonesia Uruguay Malaysia USA Philippines Argentina Germany New Zeal. Thailand France Netherlands Belgium Spain Ukraine Japan Finland UK Italy Denmark South Korea Mexico Morocco Greece Ireland Malta Brazil Sweden Romania Albania Austria Hungary Poland Hong Kong Belarus Luxembour Ecuador Singapore Norway Switzerl....
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