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Presentation to Sixth Eurostat Colloquium on Modern Tools for Business Cycle Analysis: Lessons from the Global Crisis

India and China in the Global Economy: Trade Linkages and Leading Exports Index Anirvan Banerji and Pami Dua Economic Cycle Research Institute, New York, USA and Delhi School of Economics, University of Delhi, India. Presentation to Sixth Eurostat Colloquium on

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Presentation to Sixth Eurostat Colloquium on Modern Tools for Business Cycle Analysis: Lessons from the Global Crisis

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  1. India and China in the Global Economy: Trade Linkages and Leading Exports IndexAnirvan Banerji and Pami DuaEconomic Cycle Research Institute, New York, USAand Delhi School of Economics, University of Delhi, India Presentation to Sixth Eurostat Colloquium on Modern Tools for Business Cycle Analysis: Lessons from the Global Crisis Luxembourg, September 26-28, 2010

  2. Objectives • Analyse the role of India and China in the global economy in the backdrop of increasing interdependence and trade linkages • Examine, based on trade flow patterns, whether India and China could have been drivers of the recent global recovery • Evaluate the performance of the growth rate of the leading index for exports for both India and China

  3. Contents • Economic Growth in India and China vs Global Growth • Indian & Chinese growth rate reference chronology vs global growth rate reference chronology • Global Interdependence and Trade Linkages • Bullwhip effect in India • Bullwhip effect in China • Could India and India have been drivers of the Global Recovery? • Intercountry trade patterns • Exports Growth Rate Reference Chronology and Leading Index for Exports • Case of India • Case of China

  4. Economic Growth in India and China vs Global Growth • Indian & Chinese growth rate reference chronology vs global growth rate reference chronology

  5. Growth Rate of Indian Coincident Index vs Growth Rate of Global Coincident Index ECRI’s 19 Country Composite Coincident Index, Growth Rate Indian Coincident Index, Growth Rate Shading Upper Panel: Cyclical Downturns in ECRI’s 19 Country Composite Coincident Index, Growth Rate Shading Lower Panel: Indian Growth Rate Cycle Downturns

  6. Indian Growth Rate Reference Chronology vs Global Growth Rate Reference Chronology

  7. Growth Rate of Indian Coincident Index vs Growth Rate of Global Coincident Index ECRI’s 19 Country Composite Coincident Index, Growth Rate Chinese Coincident Index, Growth Rate Shading Upper Panel: Cyclical Downturns in ECRI’s 19 Country Composite Coincident Index, Growth Rate Shading Lower Panel: Chinese Growth Rate Cycle Downturns

  8. Chinese Growth Rate Reference Chronology vs Global Growth Rate Reference Chronology

  9. Global Interdependence and Trade Linkages • Bullwhip effect in India • Bullwhip effect in China

  10. Background • World’s economies have become increasingly interdependent since the early 1990s with greater openness in the flows of services, capital and trade • Emergence of China and India has advanced the integration of the world economy • In recent years, global merchandise exports have accounted for over 20% of world GDP compared with less than 15% as recently 1990 • Exports as a percentage of GDP in China more than doubled to 33% from 15% in 1990 while that for India more than tripled over the same period from 7% to 21%

  11. Background • Increase in importance of exports in the world economy has led to the amplification of transmission of economic fluctuations to the more export-oriented economies via the ‘Bullwhip effect’ • ‘Bullwhip effect’ shows how small shifts in demand growth at the consumer level are amplified through the supply chain away from the consumer resulting in magnification of demand fluctuations as orders move up the supply chain • China’s role as the ‘world’s factory floor’ implies that even a relatively modest downturn/upturn in the consumer demand in the developed economies can potentially trigger a significant industrial downturn/upturn in China

  12. Bullwhip Effect - INDIA U.S. Personal Consumption Expenditures on Goods, Growth Rate (%) Global Industrial Production Index, Growth Rate (%) Indian Industrial Production Index, Growth Rate (%) Indian Exports, Growth Rate (%) JoC-ECRI Industrial Materials Price Index, Growth Rate (%)

  13. Bullwhip Effect - CHINA U.S. Personal Consumption Expenditures on Goods, Growth Rate (%) Global Industrial Production Index, Growth Rate (%) Chinese Industrial Production Index, Growth Rate (%) Chinese Exports, Growth Rate (%) JoC-ECRI Industrial Materials Price Index, Growth Rate (%)

  14. Could India and India have been drivers of the Global Recovery? • Intercountry trade patterns

  15. Background • Popular perception thatChina and India can serve as the engine of global growth is questionable • Examination of their major export destinations and the trade flows to the economies concerned reveals that an economic stimulus in these countries will result in an increase in exports of the US that would amount to a small fraction of 1% of US GDP.

  16. Trade Patterns

  17. Trade Patterns

  18. Trade Patterns

  19. Exports Growth Rate Reference Chronology and Leading Index for Exports • Case of India • Case of China

  20. Background • Leading Index for Exports gauges the directional outlook for exports • It takes into account future strength of demand from major trading partners and price competitiveness of exports

  21. Growth Rate of Indian Leading Index of Exports vs Growth Rate of Real Exports Indian Leading Index of Exports, Growth Rate Indian Real Exports, Growth Rate Shaded areas represent downturns in the growth rate of real exports.

  22. Performance of Growth Rate of Indian Leading Index of Exports

  23. Growth Rate of Chinese Leading Index of Exports vs Growth Rate of Real Exports Chinese Leading Index of Exports, Growth Rate Chinese Real Exports, Growth Rate Shaded areas represent downturns in the growth rate of real exports.

  24. Performance of Growth Rate of Chinese Leading Index of Exports

  25. Thank You!

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