The Growth of China and India in World Markets: Opportunity or Threat for Latin American Exporters?” Chapter 7 in this volume

This paper explores whether the rapid growth of China and India in world markets is a threat or an opportunity to Latin America and Caribbean (LAC) exporters. We proceed in two steps. First, we focus on the opportunity that the rapid growth of China and India’s markets offer to LAC exporters. Using a gravity model, we measure the impact that China and India’s demand growth had on LAC exports. We then focus on the threat or hidden opportunity that the growth of China and India had on Latin American exports to third markets. Using a gravity model, we allow for four different channels through which the growing presence of China and India in world markets may be affecting LAC exports to the rest of the world: 1) their growing presence as an exporter to third markets; 2) their growing presence as an importer from third markets; 3) their growing presence as an exporter to LAC; and 4) their growing presence as an importer from LAC. Results suggest that the growth of the two Asian economies domestic market is a large opportunity that has not been fully exploited, in particular for exporters from the Southern Cone and the Andean regions to China. We also found that the growing presence of China in world markets tended to complement LAC exports to third markets. In the case of India the evidence is mixed, probably signaling a closer specialization pattern to the one observed in LAC. In sum, China and to a large extent India’s growing presence in world markets is good news for Latin America, even though some of the potential benefits remain unexploited