Academic journal article Contemporary Economic Policy

Effects of China and India on Manufactured Exports of the G7 Economies

Academic journal article Contemporary Economic Policy

Effects of China and India on Manufactured Exports of the G7 Economies

Article excerpt

I. INTRODUCTION

The rise of China and India (to a lesser extent) over the past few decades has reshaped the global economy. With the rapid pace of globalization, these two giants have influenced the international trade of many nations around the world. The effects of China and India can be seen through two angles: rivalry effect and beneficial effect. The rivalry effect represents the competitive threats posed by the two countries on the export performance of a given country or industry of interest. On the other hand, the beneficial effect is associated with the contributions of the two countries to market expansion and efficiency enhancement through the formation of new global production networks and fostering of globalization.

On the rivalry effects, previous studies have provided extensive discussions of the effects of China on exports of various countries and regions, especially developing countries in Asia. Holst and Weiss (2004) demonstrated China's strong rivalry effect on Southeast Asian nations. Similarly, Ianchovichina and Walmsley (2005) predicted that as China improves and increases its capacity to produce parts and components, the rivalry effect may dominate in the future. Coxhead (2007) warned that Southeast Asian countries may face a new resource curse as these economies lose out to China on labor-intensive manufacturing and the growing Chinese market opportunities for natural resources. More generally, Eichengreen (2006) noted that Asia's less developed economies have been competing head-to-head with China in third markets, making it difficult for these countries to maintain their export competitiveness. Eichengreen, Rhee, and Tong (2007) and Greenaway, Mahabir, and Milner (2008) found that China's crowding-out effect was particularly strong in markets for labor-intensive consumer goods. Hence, the less-developed Asian economies specializing in similar industries have suffered most. Wood and Mayer (2011) determined that China's impact is clearest on East Asian countries, whereas its de-industrializing effect is not significant enough to be a serious threat to growth or equity in most other developing countries. Some studies have also examined the degree of China's effects in specific industries. For instance, Amann, Lau, and Nixson (2009) established that China's textile exports posed a greater competitive threat than its clothing exports to the textile and clothing exports of other Asian economies. Furthermore, this effect was less significant for higher income economies because they tended to be specialized in the segments less exposed to Chinese competition. Fall, Weiss, and Oikawa (2005), Feenstra and Kee (2007), Moreira (2007), and Gallagher, Moreno-Brid, and Porzecanski (2008) have all noted the formidable competition between Latin American countries and China with regard to manufactured goods. Moreover, Moreira (2007) added that this challenge demonstrates a worrying trend.

The rivalry effect of China, however, is not confined only to developing countries. Qureshi and Wan (2008) revealed that China poses a serious challenge to the European Union, the United States, and East Asia in medium- to high-technology industries. Kiyota (2010) found that most U.S. products are vertically differentiated from China's products. Although 85% of U.S. exports overlap with Chinese exports, U.S. goods are priced higher. However, price differences in some industries are small, which may imply that Chinese firms in these industries are catching up in product quality. Eaton, Lima-Fieler, and Santacreu (2007) revealed that the UK's goods export share fell in six of the eight examined Asian markets, and UK exporters of engineering goods appeared to suffer most. Roy (2004) noted that China has surpassed Japan and Mexico as a source of imports for both Canada and the United States, and China has become a new source of low-priced machinery and equipment to firms in North America. Khondaker (2007) elaborated that Canada's imports of machinery and equipment from China accelerated over the period 1997-2006. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.