Trade-Led Growth in India and China: A Comparative Analysis

The trade-led growth theory has received considerable attention over the decades with vast amount of literature devoted to analyse it empirically particularly in case of exportled growth hypothesis. India & China are two large Asian countries experiencing rapid growth during recent decades. For years, India’s economic growth rate ranked second among the world’s large economies, after China, which it has consistently trailed by at least one percentage point. The present study aims to examine the impact of exports and imports expansion on economic growth for India and China. As India & China are two fastest growing countries of Asia, so it is interesting to compare these economies. By selecting a relatively liberalized period from 1980 to 2012, the comparative study has used multivariate model based on Cobb-Douglas production function by incorporating variables like GDP per capita, exports, imports, gross capital formation and labour. Time series econometric techniques (Johansen Cointegration & Toda-Yamamoto (TY) approach) have been applied to test the hypothesis. The comparison of economic parameters between India and China reveals that early and more efficient reforms are the reason of better economic performance of China. The empirical findings for India suggest unidirectional causality running from GDP per capita to exports. However, no causation was found between imports and GDP per capita. For China, a strong evidence of bi-directional causality was found from GDP per capita to exports/ imports and vice versa. The study concludes that China performed better as compared to India. The difference in performance between India & China is not simply because of timings of changes in policies but the speed of reforms, implementation of policies and nature of political governance also mattered.