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This paper studies the relationship between the growth of China and India in world merchandise trade and Latin American and Caribbean commercial flows from two perspectives. First, the authors focus on the opportunity that China and India's markets have offered Latin American and Caribbean exporters during 2000-2004. Second, empirical analyses examine the partial correlation between Chinese and Indian bilateral trade flows and Latin American and Caribbean trade with third markets. Both analyses rely on the gravity model of international trade. Econometric estimations that control for the systematic correlation between expected bilateral trade volumes and the size of their regression errors, as well as importer and exporter fixed effects and year effects, provide consistent estimates of the relevant parameters for different groups of countries in Latin America and the Caribbean. Results suggest that the growth of the two Asian markets has produced large opportunities for Latin American and Caribbean exporters, which nevertheless have not been fully exploited. The evidence concerning the effects of Chinese and Indian trade with third markets is not robust, but there is little evidence of negative effects on Latin American and Caribbean exports of non-fuel merchandise. In general, China's and to a large extent India's growing presence in world trade has been good news for Latin America and the Caribbean, but some of the potential benefits remain unexploited.

Bilateral trade --- Competitiveness --- Currencies and Exchange Rates --- Economic size --- Economic Theory and Research --- Export growth --- Exports --- Finance and Financial Sector Development --- Free Trade --- GDP --- Growth rate --- International Economics & Trade --- International trade --- Macroeconomics and Economic Growth --- Markets and Market Access --- Public Sector Development --- Substitution effect --- Telecommunications --- Trade Policy

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Successful export growth and diversification require not only entry into new export products and markets, but also the survival and growth of export flows. This paper uses a detailed, cross-country dataset of product level bilateral export flows to illustrate that exporting is an extremely perilous activity and especially so in low-income countries. The authors find that unobserved individual heterogeneity in product-level export flow data prevails despite controlling for a wide range of observed country and product characteristics. This questions previous studies that have used the Cox proportional hazards model to model export survival. The authors estimate a Prentice-Gloeckler model, amended with a gamma mixture distribution summarizing unobserved individual heterogeneity. The empirical results confirm the significance of a range of products as well as country-specific factors in determining the survival of export flows. From a policy perspective, an interesting finding is the importance of learning-by-doing for export survival: experience with exporting the same product to other markets or different products to the same market are found to strongly increase the chance of export survival. A better understanding of such learning effects could substantially improve the effectiveness of export promotion strategies.

Adverse impacts --- Bilateral trade --- Currencies and Exchange Rates --- Debt Markets --- Econometric analysis --- Economic size --- Economic Theory and Research --- Emerging Markets --- Export growth --- Exports --- Finance and Financial Sector Development --- Fixed costs --- Free Trade --- Income --- Income groups --- Income levels --- Inequality --- International Economics and Trade --- International trade --- Law and Justice --- Macroeconomics and Economic Growth --- Markets and Market Access --- Overvaluation --- Poverty Reduction --- Private Sector Development --- Product differentiation --- Production costs --- Purchasing power --- Tax Law --- Technical assistance --- Trade Law --- Trade Policy --- Trade policy --- Transition economies --- Unemployment --- Wealth

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May 2000 - Multinationals have become increasingly important to the world economy. Overseas production by U.S. affiliates is three times U.S. exports, for example. Who is investing where, for sales where? Much foreign direct investment is between high-income countries, but investment in some developing and transition regions, while still modest, grew rapidly in the 1990s. Adjusting for market size, much investment stays close to home; adjusting for distance, much heads toward the countries with the biggest markets. Foreign direct investment is more geographically concentrated than either exports or production. Thus U.S. affiliate production in Europe is 7 times U.S. exports to Europe; that ratio drops to 4 for all industrial countries and to 1.6 for developing countries. Multinational activity in high-income countries is overwhelmingly horizontal, involving production for sale to the host country market. In developing countries, a greater proportion of multinational activity is vertical, involving manufacturing at intermediate stages of production. Thus only 4 percent of U.S. affiliate production in the European Union is sold back to the United States, whereas for developing countries the figure is 18 percent, rising to 40 percent for Mexico. Similarly, less than 10 percent of Japan's affiliate production in the EU is sold back to Japan, compared with more than 20 percent in developing countries. In models of horizontal activity, the decision to go multinational is a tradeoff between the additional fixed costs involved in setting up a new plant and the savings in variable costs (transport costs and tariffs) on exports. In models of vertical activity, direct investment is motivated by differences in factor costs. Tariffs and transport costs both encourage vertical multinational activity (by magnifying differences in factor prices) and discourage it (by making trade between headquarters and an affiliate more expensive). The major outward investors carry out much horizontal investment in large markets. For U.S. investors, this means Europe, especially the United Kingdom; for Japan and Europe, it means the United States. Most EU investments, however, stay within the EU. The major outward investors carry out much of their vertical investment closer to home: the United States, in Mexico; the EU, in Central and Eastern Europe; Japan, in Asia. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study the location of economic activity. Anthony J. Venables may be contacted at a.j.venables@lse.ac.uk.

Debt Markets --- Development --- Economic Geography --- Economic Size --- Economic Theory and Research --- Emerging Markets --- Exports --- Externalities --- Finance and Financial Sector Development --- Financial Literacy --- Fixed Costs --- Foreign Direct Investment --- GDP --- Goods --- Income --- Industrial Economies --- Inputs --- International Economics & Trade --- Investment --- Investment and Investment Climate --- Labor Policies --- Macroeconomics and Economic Growth --- Markets --- Mergers --- Non Bank Financial Institutions --- Private Sector Development --- Production --- Social Protections and Labor --- Theory --- Trade --- Trade and Regional Integration --- Transition Economies --- Transport --- Transport Economics, Policy and Planning --- Value --- Variable Costs