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Abstract
This paper explores the relative regional positions of China and India from a geo-economic perspective. The findings of this paper give rise to two important observations. First, the core economic factors driving trade partnerships appear to be, by and large, in the import rather than in the export domain. This suggests that import activities of China from the region depend more on the characteristics of the East Asian partners than export does. In contrast, the core economic factors, such as combined market size and FDI stocks, coupled with similar demand patterns and different factor intensities, are important for generating exports from India to East Asia. Second, though China and India have regional roles as demanders (importer) and suppliers (exporter) of merchandise goods, the differences in the relative positions of the two countries stand out from the supplier perspective. China appears to exert a much larger role as a supplier relative to India to fuel economic interdependence in East Asia. Taken together, these findings suggest that there is still a lack of regional polarization given China's extra-regional bias from the export side. The paper therefore contends that there is scope for India to manoeuvre its position regionally, particularly from the export perspective.
About the Author
Evelyn Shyamala Devadason is Head, Centre for Latin American Studies (CLAS) and Associate Professor in the Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia. She received her PhD in Economics from the University of Malaya in 2006. Her research focuses on international trade and regional integration. Her research work has been published in international journals such as World Development, The China Review, The Pacific Review, Journal of Contemporary Asia, Journal of Contemporary China, Asian Economic Journal, Global Economic Review and Asia Pacific Education Review. She has been engaged in a number of international collaborative research projects, including the International Confederation of Free Trade Unions–Asian and Pacific Regional Organization (ICFTU–APRO, Singapore), Asian Development Bank Institute (ADBI, Japan), the Asian Development Bank (ADB, Manila) and the World Bank (WB, Washington, DC).
Notes
1 China-centric order represents one of the trends in China's foreign strategy, described as nationalism in the context of emphasis on increased foreign influence (Kitano, Citation2011).
2 China absorbed only a total of 6 per cent of Asia's exports of finished goods (Huang, Citation2011).
3 The motivations for China's FTA activism precludes the following: a desire to project China's image as a benign leader in East Asia and subsequently gain leverage in global trade talks, to take advantage of market access and trade liberalization following the FTAs, to avoid being excluded from the regional race towards preferential trade liberalization (Ka, Citation2010) and as a tactical response to the changing conditions of the global economy (Noguchi, Citation2011).
4 China's specific focus on the ASEAN is actively shaping the regional architecture of East Asia (Kitano, Citation2011; Noguchi, Citation2011).
5 The RCEP, however, may not be considered as a pre-stage of a sub-regional FTA, especially since the ASEAN+3 and ASEAN+6 have been slow in their progress.
6 This specification is considered appropriate given that the East Asian economies differ considerably from China and India in terms of factor endowments (capital–labour ratios).
7 In the standard gravity model, the GDP variable is a proxy for country size (market size and production/trading capacity) (see Poyhonen, Citation1963; Tinbergen, Citation1962) while the GDP per capita (PGDP) serves to measure the income level and/or purchasing power of a country. Both variables are expected to relate positively with bilateral trade volumes.
8 It should be borne in mind that the differences in factor endowments are also crucial in determining the vertical IIT, but to a lesser degree (Sohn, Citation2005; Zhang, Citation2005).
9 The analysis is conducted with and without Hong Kong, given the role of Hong Kong for intermediating China's trade (entrepot trade).
10 Some country-pairs are omitted from the analysis due to negligible and zero trade between them, involving Macao, Mongolia and Brunei's trade with many of the other East Asian economies.
11 The earliest year for which trade data are available for China and India is 1992.
12 This level of aggregation would balance the issue of disaggregated versus aggregated analysis, in addition to reflecting the agriculture- and industry-based products. This level of aggregation also reduces the problem of a standard sample selection bias, as many more trade relationships on a product-specific level at HS2 are nonexistent.
13 If the export data are unavailable, they are replaced, if possible, by import data (the reverse side of the same trade flow). There is only a limited number of zero or missing observations.
14 The HT is a random-effects estimator which yields consistent and efficient estimates even if some explanatory variables are correlated with the error term. Thereby, it also better accounts for possible endogeneity between the explanatory variables and trade and allows the estimation of the coefficient of the time-invariant variables (see also Egger & Pfaffermayr, Citation2003, Citation2004; Koukhartchouk & Maurel, Citation2003; Serlenga & Shin, Citation2004).