Trade Openness and Economic Growth in China and India in Comparative Perspective: An Exploratory Study

Abstract

China's economic success has been attributed to export-led growth, while India has used export-led growth and domestic demand-led growth simultaneously. Therefore, both economies can learn from each success in trade performance vis-a-vis economic growth. The paper intends to analyze trade openness and economic growth performance in comparative perspective of China and India and draws policy implications using data triangulation methods. The study reveals that Trade openness ratio stood at 35.4% and 31.9% respectively in China and India in 2018, which reflects narrowing down in trade-GDP ratio in two economies. China recorded simple exports-GDP ratio at 20.5% and 42.34% respectively in 2000 and 2010 compared to India's corresponding figures at 9.6% and 15.1% respectively, reflecting much more integration of China into global trade compared to India. Export-GDP ratios have steadily increased in both countries since 1991, but declined in 2008 due to effects of the global recession and stood at 18.3% and 12.5% respectively in China and India in 2018. Over the period, China has emerged as India's largest trading partner, but bilateral trade gap of India is also increasing with its overall trade gap with rest of the world, which contributes to overall trade imbalance of India and poses a policy challenge to sustain trade between two countries along with narrowing the existing bilateral trade gap, which can be addressed effectively by India's technology-intensive exports to China. Both countries are required to remove existing trade barriers and constraints to reap full trade potential focusing on customs rules and procedures, standards, certification and regulatory practices, non-tariff barriers, and rules of origin. Mutual consensus on customs valuation and guidelines to facilitate uniform documentation across ports are needed to increase China-India trade. Despite high degree of openness, both countries experienced a small deceleration in growth in recent years. Therefore, free trade and sustained reforms are the best options for China and India to return to sustainable growth rates.