The Two Giants of Asia: Trade and Development in China and India

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The literature on trade and development has supported the existence of a strong negative relationship between trade share and country size. The larger the country in size, the smaller is the trade ratio, and a lower degree of “openness” means less competitive pressures emanating from abroad when the country opens up to foreign trade, investment, and technology transfer. It is therefore likely that the impact of opening up policies would be much less in a large country such as China and India than among other East Asian NICs. The success story of China’s opening policies in recent years may imply that the favorable impact of “opening up” is not just for small economies, but also for large continental economies. Consequently, large countries such as China and India may not necessarily suffer from a large country constraint in adopting the export-oriented, outward-looking development strategy.