China and India’s Growth and their Relation to Trade Specialization Patterns in United States, European Union and Colombia

Abstract

Due to its effects on the global economy, China and India´s recent economic performance is currently a key research topic. This paper examines the relation between these countries and the United States, the European Union and the Colombian trade specialization patterns over the 1990-2006 period. To this end, we developed a Revealed Comparative Advantage Index (RCA) using sector-level data according to the International Standard Industrial Classification (ISIC) at a 3-digit level, by country and year. First, we studied the evolution and change of the index for each country over time, using bivariate correlations between each country’s RCA, the Herfindahl concentration index and the exports and imports structure at an industrial
level. Second, we estimated a model based on the RCAs and net bilateral exports, to calculate the relation between China and India and the trade specialization pattern of the other economies. Third, since the comparative advantage theory is based on factor endowments, we estimate a translog function based on the industrial value added as a function of factors endowment to calculate the Rybczynski elasticities for each economy, incorporating these results to a new estimate for the initial model.
Since the volume of trade between Colombia and China and Colombia and India is still small, an indirect analysis is made of these relations, taking as a reference the changes in the trade specialization patterns of the European Union and the United States, and Colombia’s main trading partners within the approval and implementation of Free Trade Agreements (FTAs). Finally, based on the previous direct and indirect results, we offer some policy recommendations for Colombia.