an analysis for india and china - icrier

1 Introduction ∗
Reduction of trade barriers creates competitive pressures and the potential for
technology transfer so as to lead to productivity gains and restructuring of an economy
toward its comparative advantage. India has undertaken a series of economic reforms
towards opening up of the economy in the decade of the nineties. Notable among these
has been the extensive effort to liberalize its international trade. It is therefore expected
that trade liberalization in India would have led to changes in the composition of exports
so as to reflect India’s comparative advantage in the global economy. Further, a country’s
comparative advantage in international trade may be influenced by differential rates of
change in accumulation of production factors or due to the increased trade integration of
other countries. China’s recent move towards export oriented development strategy may
have altered the picture of comparative advantage for labor intensive manufactures in the
world market. Across developing countries there is an ongoing debate and emerging
concern about the threat and opportunity in relation to the rise of China and the
consequent intensification of competition in labour intensive manufactures. The debate is
even more pertinent in case of India, as China and India are not just similar in size but
also with respect to factor endowments. It is important therefore, to explore the structure
of comparative advantage of India and China and the extent to which the two economies
compete with each other in the global market for manufacturing sector commodities. This
paper makes an attempt to develop some insights on the subject.
Specifically, the paper examines the structure of comparative advantage enjoyed
by India and China in the global market, individually and in a comparative framework.
Following this, an analysis of the comparative advantage according to factor intensity for
the two economies is undertaken. The pattern of comparative advantage is also examined
for inter-temporal variation over the period 2000-2003. The analysis of comparative
advantage has been undertaken using the Balassa (1965) index of revealed comparative
advantage for the two and six digit level of HS classification. Comparative advantage
∗ I express my gratitude to Prof. Arvind Virmani who motivated me to take up this research study. Prof.
Virmani made valuable suggestions which are reflected in the final paper. Thanks are also due to
participants at the ICRIER seminar for giving useful comments
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