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Intensive and extensive margins of exports: What can India learn from China?

C Veeramani, Lakshmi A () and Prachi Gupta ()
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Lakshmi A: Indira Gandhi Institute of Development Research
Prachi Gupta: Indira Gandhi Institute of Development Research

Authors registered in the RePEc Author Service: Lakshmi Aerath

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: We decompose India's export performance in manufactured products during 2000-2015 into changes at the intensive and extensive margins. India's performance, along different margins, is compared and contrasted with that of China. The results show that while China outperforms India at both the margins, the gap is particularly wide at the intensive margin. Decomposition of intensive margin along quantity and price margins shows that Chinese products are generally sold cheaper than Indian products. Higher price margin, however, has not translated into high intensive margin for India due to its abysmally low quantity margin. We examine different explanations for China's superior performance relative to India, along different margins, using a gravity model. Our results suggest that China's exchange rate policy was not the prime reason for its export success. Neither do we find that FDI inflows were significant in explaining the export performance gap between them. The results show that China's export relationship bias towards high-income partner countries holds the key in understanding its superior performance. This bias is a natural consequence of China's high degree of specialization in labor-intensive activities. India, by contrast, due to an idiosyncratic pattern of specialization, has failed to exploit its export potential in high income countries.

Keywords: Manufactured exports; extensive margin; intensive margin; India; China; gravity model (search for similar items in EconPapers)
JEL-codes: F10 F14 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-tra
Date: 2017-02
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