Indo-China Trade, Yuan in SDR Basket and the World Economy

By Bhowmik, Debesh | Political Economy Journal of India, January-June 2016 | Go to article overview

Indo-China Trade, Yuan in SDR Basket and the World Economy


Bhowmik, Debesh, Political Economy Journal of India


Introduction

China will become the topmost GDP economy by 2025. It had already entered in IMF, World Bank and WTO and is considered as one of the policy makers of the world economy. China's international trade share is the second highest followed by Euro Area. Chinese Yuan is included in the SDR basket with effect from 1st October, 2016. Obviously China will be given great importance in any policy formulation in the international monetary system along with USA and EU. China has been performing a leading role in Asian Economic Integration as well as East Asian Financial Integration. China leads to activise the AMF to find out an alternative monetary system as well as trade and financial integration linkages by ASEAN+3 including India. On the other hand, India enters into G-8 club and her GDP within 2025 will be the third. India's trade and financial integration with China and in Asian countries have been boosting speedily. India's role in climate finance and IMF's policies became crucial and strategic towards sustainability of the world economy. Indo-China trade has been enhancing rapidly and they are considered importance in tariff and non-tariff barriers and in dispute settlement body, in TRIPS and TRIM. India and China have been treating as political determining factor in world political economy.

Indo-China trade has a great consequence in the domain of Asian Economic Integration and has a real impact on the world regional and sub-regional multilateral trade patterns. In this paper, these notions will be discussed with the help of various models.

Methodology and Data

In explaining Indo-China trade, trend of export and import intensity were calculated during 1986-2014 where India's export intensity to China =exports to China/India's total export and India's import intensity to China=India's import from China/total imports. Trade intensity =export intensity of India/India's world export share. Johansen Co-integration (1988) and VAR (1991, 1996) models have been used to relate export intensity and import intensity with growth rate, India's world share of FDI inflows and foreign exchange reserves, yuan-dollar exchange rate, China's world share of FDI inflows during 1986-2014. Double log multiple regressions have been applied to find out the relations of trade intensity with the above variables during 1986-2014. The data of India's export and imports intensities were taken from Ministry of Commerce, Government of India. India's growth rate of GDP is taken from the Planning Commission. FDI inflows of China, India and world have been collected from World Investment Reports. Yuan-dollar exchange rate was found from Central Bank of China. Total foreign exchange reserves of China, India and the world were taken from International Financial Statistics.

Indo-China Trade

India's export intensity to China has been increasing at the rate of 14.9 percent per year during 1986-2014 which is significant and is estimated below;

Log(X)= -1.7657+0.14907t
         (-7.18)* (1041)*

[R.sup.2]=0.80, F=108.502, DW=0.47, X= India's export intensity to China, * =significant at 5 percent level

In Figure-1, the estimated trend line is shown by green line.

India's import intensity with China has been increasing at the rate of 14.80 percent per year during 1986-2014 which is significant and is estimated below;

Log (M) =-1.2121+0.148016t
         (-5.043)* (10.578)*

[R.sup.2]=0.8035, F=111.9 *, DW=0.519, M=India's import intensity to China, * =significant at 5 percent level.

In Figure-2, the trend line is estimated and is shown clearly by green line.

One percent increase in India's export intensity to China induced to 0.1212 percent increase in the growth rate of GDP of India during 1986-2014 which is significant at 10 percent level and is estimated below:

Log (G) =1.739+0.1212log(X)
         (23.34)* (2. … 

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