The Impact of China and India on African Manufacturing Exports on the Third Market: Gravity Approach and a Test of Flying - Geese Theory for Africa
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2007-06
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Addis Ababa University
Abstract
In this paper, we address two major questions. First, the question of whether China and India displace the African manufacturing export from the third market and, secondly, the question of whether there is an evidence for shifting comparative advantage from China and India to Africa as predicted by the flying-geese theory of industrial development.
The commodity is disaggregated down to three-digit SITC Rev.3 according to the UN Comtrade classification. We employed the gravity equation to test whether China and India are crowding out the African manufacturing exports from the third market. In contrast to most of the researches which estimate gravity model on averages of bilateral trade flows from cross-section data, we estimated the gravity model on panel data of imports of six third market countries from thirteen African exporter countries for the period 1995-2005. To test whether there is an evidence of shifting of comparative advantage from China and or India to Africa as predicted by flying-geese theory, we estimated Spearman’s rank correlation coefficients on indices of the revealed comparative advantage vectors of the African exporters and China and India for the period 1995-2004.
Both the gravity and flying-geese models predicted same outcome. The major finding of this paper is that there is strong evidence that China has been displacing African manufacturing from the third market but India has been complementing in the early years. However, the overall third market impact of China and India has been that of complementarity in the later years of the sample period. Furthermore, we found an evidence for shifting comparative advantage from China and India to Africa as the flying-geese theory predicts, South Africa being the leading goose. South Africa gained comparative advantage earlier than other African countries and moved to the higher stage of industrialization followed by Kenya. The major implication of this 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 in the spirit of export promotion may be uncertain
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China, India