Bilateral Trade Costs and Growth of Trade in Services: A Comparative Study of India and China

Abstract

This chapter estimates the bilateral trade costs of services in India and China, and investigates whether trade costs are significantly different for these two countries with respect to their major trading partners. It also assesses how much the decline in trade costs accounts for the growth of trade in services in these two countries over the period 1995–2010. This study will add to the very scanty literature on the analysis of trade costs in services comparing the case of India and China. Existing estimates largely use total trade or the goods sector without any focus on the services trade. The study finds that over the sample period (1995–2010), both the countries have witnessed a significant decline in trade costs with respect to many of their major trading partners but compared to India the decline in trade costs are larger in China. It has also been noted from the results that even though bilateral trade costs declined with many of their major trade partners over our sample period, increase in the economic size of these countries relative to the world played the most important role behind the growth of bilateral services trade both for India and China.