The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean?

25 Pages Posted: 20 Apr 2016  

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Daniel Lederman

World Bank - Latin America and Caribbean Region

Isidro Soloaga

University of the Americas, Puebla

Date Written: August 1, 2007

Abstract

This paper studies the relationship between the growth of China and India in world merchandise trade and Latin American and Caribbean commercial flows from two perspectives. First, the authors focus on the opportunity that China and India's markets have offered Latin American and Caribbean exporters during 2000-2004. Second, empirical analyses examine the partial correlation between Chinese and Indian bilateral trade flows and Latin American and Caribbean trade with third markets. Both analyses rely on the gravity model of international trade. Econometric estimations that control for the systematic correlation between expected bilateral trade volumes and the size of their regression errors, as well as importer and exporter fixed effects and year effects, provide consistent estimates of the relevant parameters for different groups of countries in Latin America and the Caribbean. Results suggest that the growth of the two Asian markets has produced large opportunities for Latin American and Caribbean exporters, which nevertheless have not been fully exploited. The evidence concerning the effects of Chinese and Indian trade with third markets is not robust, but there is little evidence of negative effects on Latin American and Caribbean exports of non-fuel merchandise. In general, China's and to a large extent India's growing presence in world trade has been good news for Latin America and the Caribbean, but some of the potential benefits remain unexploited.

Keywords: Economic Theory & Research, Free Trade, Currencies and Exchange Rates, Trade Policy, Markets and Market Access

Suggested Citation

Olarreaga, Marcelo and Lederman, Daniel and Soloaga, Isidro, The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean? (August 1, 2007). World Bank Policy Research Working Paper No. 4320. Available at SSRN: https://ssrn.com/abstract=1007353

Marcelo Olarreaga

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Daniel Lederman (Contact Author)

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

Isidro Soloaga

University of the Americas, Puebla ( email )

Sta. Catarina Martir
Cholula, Puebla 72820 72810
Mexico

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