Transcript Competing with Giants: Who Wins, Who Loses?

Competing with Giants: Who
Wins, Who Loses?
Betina Dimaranan, Elena Ianchovichina, and Will Martin
National University of Singapore
15 September 2006
Export Growth: China and India

Two giant labor-intensive exporters, growing
rapidly, but some important differences


Services much more important in India
Only China integrated into global networks

But both now rapidly integrating into world
production networks

What will be the implications for them, and for
other countries?
Importance of Services
30
25
%
20
China
India
15
10
5
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Import Share: Parts & Components
35
30
25
20
1992
2002
15
10
5
0
India
China
Radically different export patterns 6-digit
China
ADP Parts
Digital ADP machinery
Input or output units for ADP
Transmission apparatus
Parts for transmission apps
Monolithic integrated circuits
Storage units,
Video recording apparatus
Optical devices
Video recorders
Television receivers
Cargo containers
Static converters
Parts for transmission apps
Petroleum oils
%
4.0
4.0
4.2
3.1
2.3
1.9
1.5
1.5
1.4
1.2
1.2
1.1
0.9
0.9
0.9
India
Non-industrial diamonds
Petroleum oils
Articles. of jewelry
Iron ores
Milled rice
Other organic cpds
Flat rolled products
Other medicaments
T-shirts, singlets
Women’s blouses
Frozen shrimp
Men’s cotton shirts
Imitation jewelry
Cotton furnishings
Oil-cake
%
12.7
9.7
4.6
4.5
2.6
2.1
2.0
1.9
1.4
1.4
1.5
1.3
1.2
1.2
1.1
Major reforms under way in India

Reductions in non-agricultural protection

Improvements in the operation of duty
exemption/drawback schemes

Improvements in infrastructure/lowering of
trade costs
Questions to be addressed

What are the likely effects of India’s move to
greater integration in the world economy?

What will be the effects of rapid growth by
two large, globalized exporters?


On each other?
On other developing countries?
Methodology

Modify the GTAP-6 model to allow duty
exemptions on intermediates used for exports



Move from 2001 base to 2005 incorporating agreed
reforms– especially China’s WTO commitments
Examine globalizing reforms in India
Project the global economy forward to 2020



Compare with higher-than-expected growth in China
and India
Allow for increases in the variety of goods exported
from China and India
Consider growth biased to physical or human capital
India’s Reforms

Reductions in non-agricultural tariffs

Making duty exemption/drawback schemes
more effective


Modeled as introduction of such schemes for all
exported goods
20% reduction in trade costs
Changes in India’s Exports

Big increases in exports
of metals, machinery
and electronics
%
Chem., Rubber, Plastics
90
Metals
108

But the correlation with
China’s exports of
manufactures declines
from 0.01 to -0.02
M. Vehicles & Parts
60
Machinery & Equip
168
Electronics
140
OthSvces
CommSvces
TrdTrans
OthMnfc
Electronics
MachEquip
MVH
Metals
CRP
Minerals
WoodPaper
Leather
WearApp
Textiles
Energy
OthPrFd
Dairy
LstkMeat
OthCrp
PltFbr
Sugar
OilsFats
VegFrt
Grains
Wheat
Rice
Implications for the composition of India’s
exports
0.25
0.20
0.15
China
B- Ind
0.10
P- Ind
0.05
0.00
Baseline simulation, % pa, 2005-20
China
India
Low inc
Middle inc
High inc
World
GDP
%
6.6
5.5
4.7
4.5
2.7
3.1
Unsk
Lab
%
0.8
1.6
1.7
1.0
0.9
0.9
Skil
Lab
%
3.9
4.0
3.1
3.1
0.4
0.8
Phy
Cap.
%
8.5
6.1
4.2
3.9
3.0
3.2
Popn
%
0.6
1.1
1.5
0.8
0.2
0.9
Baseline simulation, % pa, 2005-20
Welfare
$m
%
China
1965 146.2
India
116.5
631
Low inc
84.3
495
Middle inc 3284 81.9
High inc
11466 47.8
World
1965 146.2
Output
Exports Imports
%
%
%
161.9
124.4
80.7
75.6
49.8
161.9
187.8
189.9
70.7
73.0
57.8
187.8
167.7
151.4
90.7
87.0
58.7
167.7
Impacts of higher growth in China & India
on other countries

Benefits from increases in direct trade




Strengthening of demand for exports
Greater supplies of goods from China & India
Challenges from third market competition
Quality and variety growth based on
Hummels and Klenow (2005)


Quality of exports represented as an increase in
the effective services provided
Variety growth based on H-K assessment that 2/3
of export growth from new varieties
Implementation

Primary exogenous shock an increase in GDP 200520 growth of 2.1% per year in China &1.9% in India



Based on a model of potential growth rates
Designed to replicate Hummels-Klenow increase in varieties
66% of growth rate & increase in actual prices of 0.09% for
each 1% of growth
Quality & variety shocks introduced through changes
in λ & N in Hummels-Klenow price aggregator
 P
P   N . 
   
*
(1 )



(1 /(1 ))
Impacts on world welfare
Australia & N Zealand
China
Japan
Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
India
USA
Argentina & Brazil
EU 25
Sub-Saharan Africa
LICs (excl India)
MICs (excl China)
High income countries
World
Growth
%
0.45
39.9
0.16
0.11
0.27
0.87
-0.57
-1.68
-0.31
-0.07
33.7
0.00
0.13
-0.04
0.96
0.46
0.61
0.03
3.8
Growth & Quality
%
0.91
43.6
0.42
1.00
0.61
2.03
-0.89
-0.34
0.24
0.29
36.7
0.15
0.28
0.18
1.50
0.87
0.87
0.28
4.3
Impacts on exports, 2005-20
Regions
Australia & N Zealand
China
Japan
Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
India
USA
Argentina & Brazil
EU 25
Sub-Saharan Africa
LICs (excl India)
MICs (excl China)
High income countries
World
Growth
%
-0.06
29.41
2.44
3.45
0.18
0.27
-0.26
4.92
1.63
-1.10
28.9
0.67
-0.06
-0.14
-0.24
-0.07
-0.18
0.79
4.4
Growth & Quality
%
0.72
55.34
4.80
5.83
-0.10
0.02
-3.19
6.50
2.33
-2.33
47.05
2.87
0.45
-0.18
0.80
0.77
-0.16
1.73
8.5
Impacts on industry output, 2005-20
Regions
Textiles
Apparel
Leather
Wood
Minerals
Chemicals
Metals
Auto
Machinery
Electronics
Other
China
%
30.0
20.5
45.2
34.7
36.3
39.2
34.8
40.9
40.2
58.2
33.1
India
%
26.2
11.1
45.5
32.1
33.9
33.1
34.0
30.0
41.5
36.5
15.6
IDN
%
-15.6
-21.4
-20.0
15.4
-3.4
0.9
-8.9
-2.8
-4.4
-12.0
-19.2
PHL
%
-14.3
-25.7
-17.0
1.9
1.3
5.5
2.6
0.4
4.0
-13.9
-9.9
SGP
%
-7.9
-16.9
-21.7
1.6
3.9
0.8
5.0
-11.4
-2.5
5.2
-20.3
USA EU 25
%
%
-10.5 -9.9
-15.3 -16.8
-6.4 -8.5
0.3
0.8
0.2
-0.5
1.4
-3.0
-1.0 -1.3
-0.4 -1.3
-4.2 -5.0
-11.0 -11.7
-16.7 -6.6
SSA
%
-10.4
-10.3
-7.7
0.6
1.2
-2.0
1.4
-8.5
-16.1
-24.9
-13.3
Productivity growth likely biased

We consider scenarios where growth is
biased towards more advanced sectors


Perhaps the most interesting is bias towards
strong export sectors in China and India


Sectorally, or through capital growth
metals, electronics, machinery and equipment,
motor vehicles and commercial services
Consider 2% productivity growth per year
Growth in strong export sectors, 2005-20
Australia & NZ
China
Japan
Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
India
USA
Argentina & Brazil
EU 25
Sub-Saharan Africa
LICs Excl India
MICs Excl China
High Income Ctries
Welfare
%
2.19
33.28
0.79
1.16
2.32
4.88
-2.43
4.02
1.85
4.36
19.08
0.00
0.89
0.73
2.62
2.20
1.77
0.65
Export volume
%
-0.01
96.4
4.4
4.1
-0.7
-6.6
-18.3
-8.6
-9.8
3.2
72.9
5.1
1.3
-2.5
-2.2
2.6
-2.2
-0.4
Impacts on sectoral outputs, 2005-20%
Regions China India Japan IDN
Textiles
-80
-41
48
39
Apparel
-73
-68
37
96
Leather
-64
-89
31
-2
Wood
-52
-44
9
37
Minerals
-1
-38
17
-8
Chemicals -46
-42
23
-1
Metals
43
118
-19
-46
Auto
196
26
-23
-27
Machinery 95
156
-32
-38
Electronics 252
9
-44
-78
Other
-58
-71
28
38
PHL
72
266
44
22
4
16
-41
-25
-24
-65
81
SGP
70
37
29
30
51
31
-32
-39
-42
-35
49
USA EU 25 SSA
37
72
17
81
111
32
34
38
12
6
9
7
7
5
13
15
6
7
-15
-25
-46
-14
-28
-41
-24
-37
-50
-57
-62
-70
77
44
30
Conclusions

China and India currently compete relatively
little, despite being labor-intensive giants


Higher growth by China and India likely to be
beneficially for the world as a whole, and for
most developing countries


Increasing globalization by India looks unlikely to
greatly intensify that competition
Especially when improved quality and variety of
exports is considered
But substantial adjustments in production and
exports required in some cases