China and India's Growth Surge: Is it a curse or blessing for Africa? The Case of Manufactured Exports

Abstract

In this paper, we address two major questions. First, the question of whether China and India are displacing the African manufacturing export from the third market. Second, whether there is an evidence of shifting comparative advantage from China and India to Africa. We employed a gravity model with a panel data using 13 African exporters of clothing and accessories for the period 1995-2005 to answer the first question. To answer the second question, we used a flying-geese model and estimated Spearman's rank correlation coefficients on indices of the revealed comparative advantage vectors of the African exporters and China and India for the same period. Both the gravity and flying-geese models predicted similar outcomes. We found that there is strong evidence that China has been displacing African manufactures from the third market while India has been complementing it in the early years of the study. However, the overall third market impact of China and India has been that of complementarity in the later years of the study period. This result is found to vary across countries. Furthermore, we found evidence of shifting comparative advantage from China and India to Africa as the flying-geese theory predicts, South Africa being the leading goose followed by Kenya. The major implication of the study is that, in the world where China and India are reshaping the global economic order dynamically, the outcomes of the traditionally received wisdom of trade liberalization and industrialization policies through export promotion may be uncertain and requires strategic thinking.

Do Chinese Exports Crowd-out African Goods? An Econometric Analysis by Country and Sector

“…China exports, might be correlated to the error term and that instrumental variables should be adopted to avoid biased estimations. More recent studies measuring the crowding-out effects among developing countries have also adopted instrumental variables based on two stages regressions (Eichengreen and Tong, 2006;Geda and Meskel, 2007;Greenaway et al, 2006).…”

“…Stevens and Kennan (2006), for instance, adopt a very complex methodology (although arbitrary for some aspects of the selection process) based on data at the product level and show that the impact on African countries is quite limited. Furthermore, all these studies -with the exception of Geda and Meskel (2007) and Broadman (2007) -do not take into account the sector specificities and fail to provide an accurate analysis of the possible complementarities that might arise from increasing trade relationships with China. Finally, none of these studies includes North Africa.…”

“…Gravity models have been widely adopted to analyze the impact of trade-related policies such as the effects of participation to free trade agreements (Fontagnè and Zignago, 2007;Geda and Kebret, 2007;Collier and Venables, 2007) or to monetary unions (Serlenga and Shin, 2004); to evaluate the impact of any policy regime that can ease trade (Broadman, 2007) and to investigate the relations existing among various forms of internationalization (Egger and Pfaffermeyr, 2005;Bezuidenhout and Naudé, 2008). More recently, gravity models have also been adopted to measure displacement effects (Palley, 2003;Blecker and Razmi, 2008), to investigate the impact of China on Asian trade performance (Eichengreen et al, 2004;Eichengreen and Tong, 2006;Greenaway et al, 2006), and the effects of China and India' textile exports on a small group of African countries (Geda and Meskel, 2007). To do this, the traditional gravity equation has been augmented including Chinese exports to the same markets among the independent variables (cf Eichengreen et al, 2004).…”

“…We use a modified version of the model that has been adopted in previous studies (Eichengreen et al, 2004;Greenaway et al, 2006;Geda and Meskel, 2007), which includes the first difference of trade flows, i.e. African exports (X) and Chinese exports (CH_EXP), and the annual GDP growth rates of both the importer and exporter instead of the levels of GDP.…”

Distance to Growing Markets and Sub‐Saharan African Exports*

“…For example, it should be taking the opportunities of increased demand from the large and rapidly expanding Indian and Chinese economies. Furthermore, as these countries grow richer, this may allow Africa to develop new forms of comparative advantage in labor intensive manufactures (Geda and Meskel, 2008) or more likely to benefit from supplying resources to these countries.…”