Study of India and China’s trade potentials with respect to African countries: A gravity model approach

Abstract

In this paper we have tried to estimate the trade potentials for India and China with respect to certain African countries. We have used the augmented gravity model first to estimate the effect of different factors on the volume of trade flow between the countries. We have performed this estimation for four countries, namely India, China, Brazil and South Africa. These four countries were used because they are at the forefront of economic growth and also feature among the stronger emerging economies. After estimation of the augmented gravity model and establishment of the predictive equations, we used them for prediction of the trade potential of China and India with respect to some selected African countries (South Africa, Nigeria, Zambia, Kenya and Uganda). We studied the results thus obtained in the light of the tariff regimes of these countries, openness of trade and political and environmental situations. The results of the study were used to explore new avenues for trade with Africa for these countries. Through the results thus obtained we reached a conclusion that India has exhausted its potential for trade in product with African countries while China still has potential in terms of trade in products and commodities. We then looked into the possibility of India driving trade through services. We looked at different sectors wherein India would be able to provide value added services and increase its share in trade with African countries.