1. Chindia’s Economic Impact on Latin America

2. Chindia’s Impact Bilateral exports and imports Export to third markets
Competition for FDI
Bilateral FDI
(excluding indirect effects from rising commodity prices and expanding global production network)

3. Literature
China replaced Mexico as the second source of United States imports. Hale(2005) suggests that the Mexican maquiladoras lost around 250,000 employees since the early 2000s due to their relocation to Asia (Hale 2005).
Lall, Weiss, and Oikawa (2004) estimate that in 2002 around 40 percent of LAC exports to the world are under direct or partial threat from Chinese exports.
Hanson and Robertson (2006) explored the impact of the increased supply capacity of China in LAC exports of the top manufacturing industries in Argentina, Brazil, Chile and Mexico (metals, machinery, electronics, transport and industrial equipment), and found that without the increase in Chinese supply of these products, export growth in these products could have been 1 percentage point higher in Argentina and Brazil, 2 percentage points higher in Chile, and 3 percentage points higher in Mexico.

4. Chindia and Latin America: Bilateral Trade
The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean?

5. Objective
This paper studies the relationship between the rapid growth of China and India in world trade and Latin American and Caribbean (LAC) commercial flows from two perspectives:
first, from the viewpoint of China and India as fast-growing export markets and as sources of imports for LAC, and
second, in terms of their potential effects on LAC trade flows with other markets.

6. Share of China and India in LAC exports, 1990 versus 2004

7. Share of China and India in LAC imports, 1990 versus 2004

8. Gravity Model
Basic Model
Extended Model (1)
Mijt: imports of country i from country j at year t
Y: GDP, D: distance, B: contiguity, l: language, d: dummy variable
Linder: absolute value of the difference of GDP per capita
R={Andean countries, Caribbean countries, Central America, Southern Cone}
α+αR captures the impact of the growth of China on exports of region R to China.
β+βR captures the impact of growth of region R on exports to China.

9. Demand and supply elasticities of LAC trade with China
Numbers in bold are for the effect of China’s and India’s GDP growth on LAC exports
(Chinese and Indian demand). “Own supply” captures the effect of LAC’s GDP growth on their exports to China/India.
The reported coefficients come from the econometric estimation of the gravity model of trade, augmented by the
interaction of country and country-group dummy variables.

10. Demand and supply elasticities of LAC trade with India

11. Implications
The product of the demand-elasticities times the change in China’s GDP between 2000 and 2004, suggests that if LAC exports to China had fully exploited the increased demand from China, they would have accounted for 8% of LAC exports in 2004 (actual=5%).
The demand elasticities of both China and India for imports from LAC countries were dramatically larger than LAC’s supply elasticities.

12. Elasticities of LAC’s trade with third markets with respect to China and India’s trade flows
Extended Model (2)
four potential channels through which Chinese (or Indian) trade could affect LAC exports to third countries
exports of China to the third market,
imports of China from the third market,
exports of China to LAC and
imports of China from LAC

13. Impact of China's Trade Flows on LAC Non-Fuel Exports to Third Countries

14. Impact of Indian Trade Flows on LAC Non-Fuel Exports to Third Countries

15. Implications
There is little evidence consistent with dramatic negative impacts of China’s growing exports to third markets on LAC exports.
On the contrary, LAC exports were positively correlated with the growth of Chinese and Indian exports to third countries.

16. Results
The results suggest that the growth of China and India in world markets are an opportunity for LAC exporters and importers.
The growth of China and India during could account for up to 8 percent of LAC exports in 2004, mainly driven by China, as India accounts for less than 0.5 percentage points of this 8 percent.
There remains an untapped opportunity that has not been fully exploited, especially by exporters in the Southern Cone and among Andean countries whose exports are well below potential.
There is no robust evidence of substitution between China’s trade flows and LAC exports to third markets.

17. China: Threat to Latin America in Third Markets?

18. Trade Structure and Chindia’s Impact
resource intensive
labor intensive
China
low tech & skill
medium tech & skill
high tech & skill
dynamic
impact
static
impact

19. World Market Shares

20. LAC’s Annual World Market Losses to China
Ljki is the loss (US$) of country j to country k in the product i, Gji is the gain of country j in the product i, msji is the market share of country j in the product i, Mi is the world imports of good i.

21. LAC’s Annual World Market Losses to China

22. LAC’s Annual World Market Losses to China

23. LAC’s Annual World Market Losses to China

24. LAC Net Exports to China by factor intensity

25. Coefficient of Correlation for Export Composition LAC-China

26. Coefficient of Correlation for Export Composition LAC-China

27. Coefficient of Correlation for Export Composition LAC-China

28. Coefficient of Correlation for Export Composition LAC-China

29. Trade Structure Static effect
If a country has similar export structure to that of China, the negative impact may be stronger.
Dynamic effect: Export similarity decreased for many Latin American countries.
natural resource ↑  similarity ↓
textile and clothing ↓  similarity ↓
electronic ↑  similarity ↑
Is this good?

30. Dynamic Effect: LA’s Specialization
Specialization and Adjustment during the Growth of China and India: The Latin American Experience

31. Objective
to examine the extent to which the growth of China and India in world markets is affecting the patterns of trade specialization in Latin American economies.

32. RCA
where
country c, sector s, time t

33. RCA indices
The specialization patterns of LA and the two Asian economies diverged between 1990 and 2004.
-India and China experienced large increases in their
RCAs of manufacturing sectors and large falls in commodities.
-Mexico and Andean and Central American countries have a similar pattern to the one observed in China and India, although not as pronounced.
-The Southern Cone experienced increases in their comparative advantage for commodities, while their comparative advantage in manufacturing declined.

34. Competing in the same products as China and India?

35. Which industries help explain LA’s diverging patterns of specialization

36. Which industries help explain LA’s diverging patterns of specialization
1. China/India RCA increases, and LA RCA remains constant
2. LA RCA increases, and China/India RCA remains constant.
3. China/India RCA increases, and LA RCA declines.
4. LA RCA increases, and China/India RC declines.
5. China/India RCA declines, and LA RCA remains constant.
6. LA RCA declines, and China/India RCA remains constant

37. The effects of the RCAs of China and India on the RCAs of LA

38. The effects of the RCAs of China and India on the RCAs of LA by sector

40. Results
The results suggest that LA’s trade specialization—with the exception of Mexico—has been moving in opposite direction from the trade specialization of China.
This indicates that LA’s trade structures are becoming increasingly complementary to the specialization of China.

41. China’s impact on FDI
DOES CHINA HAVE AN IMPACT ON FOREIGN DIRECT INVESTMENT TO LATIN AMERICA?

42. China’s impact on FDI to LA
Is external financing diverted from Latin American countries into China?
It depends on a number of different factors.
A first one is the degree of integration of capital markets. If capital markets are not fully integrated across countries –or, more likely, regions– an increase in Chinese inward FDI will not necessarily imply a reduction in FDI to another country or region.
The large regional FDI flows in Asia may fit into this description. Hong Kong, Taiwan, Macao and Singapore have been the main suppliers of FDI to China while practically irrelevant for other parts of the world, including Latin America.

43. China’s impact on FDI to LA
A second aspect is if the global supply of FDI is constant. If supply were constant, an increase in FDI to China would reduce the FDI to other regions.
The global supply of FDI may be elastic; if foreign direct investors reap large benefits from their presence in China, or there are spillovers in other countries, more savings may be converted into FDI also in other areas of the world.
China itself – with a huge saving rate – is an important source of FDI.
A third aspect is the nature of Chinese inward FDI. If oriented towards exports, it might reduce FDI in other countries which compete in the same export markets. This will be less so if FDI is oriented towards China’s domestic demand. In addition, if FDI substantially increases Chinese imports, it might foster FDI to other countries which are suppliers of Chinese imports. This will be particularly the case for exporters of commodities, which China is scarce of.
The impact of Chinese inward FDI on Latin American countries is an empirical question.

44. Variables
Our dependent variable is composed of annual bilateral inward FDI flows from the different OECD home countries towards the six largest host economies of Latin America. These are Argentina, Brazil, Chile, Colombia, Mexico and Venezuela.
The data excludes some important suppliers such as Hong Kong, Macao, Taiwan or Singapore.
The objective variable is the bilateral inward FDI flows from different OECD countries to China.

45. Regression Model

46. Results

47. Results

48. Conclusion
Over a long time span, from 1984 to 2001, there is no evidence of FDI dislocation from Latin American countries to China.
However, it seems to be present in a more recent time span, which focus on the years when FDI flows grew more rapidly worldwide and negotiations for China’s WTO membership accelerated (namely, from 1995 to 2001).
This impact was significant in the case of Mexico and Colombia, whereas the rest of Latin America countries were not affected.

49. China Effect in SE Asia and LA
Southeast Asia
Latin America
OECD
Asia
Strong
Substitution Effect - US
(except Mexico)
EU-18
Complementary
Effect
Very Minor Substitution Effect
Source: The China’s Impact on Emerging Countries’ Inward FDIs / 심정아

50. China’s impact on employment

51. Question
Are China and India, the ‘mighty giants’ driving the secular fall in manufacturing jobs in Latin America?

52. Share Manufacture in GDP (%)
Southeast Asia
Latin America

53. Employment in the Argentine Industrial Sector

54. Share of Argentine Imports from China and India

55. Share of Argentine Imports from Brazil, EU and USA

56. Import penetration and employment

57. Chindia’s impact on employment

58. Chindia’s impact on employment by skill

59. Implications
The increase in overall import penetration cam only explain a relatively small share of the change in manufacturing employment, which declined by 31%.
1% increase in import penetration leads to a 0.07% decline in labor demand.
Given that import penetration increased by 79% during , the decline in labor demand that can be attributed to the increase in import penetration is around 6%.
The increased importance of China as a source of imports had an almost negligible marginal impact on the decline in labor demand associated with the increase on overall imports.
1% increase in the share of imports from China, leads to an additional 0.02% decline in the growth of Argentina’s labor demand.
Thus, the six-fold increase in the share of imports from China over the period (from 1% to 6%) could only explain an additional 0.1 to 0.2% decline in labor demand.