Dynamics of Trade Potentials in ‘Emerging Asia’ in the Post Financial Crisis Era

Abstract

The onset of financial crises in US and European Union system has its lingering impact on the economies of ‘Emerging Asia’. It is very crucial to examine its impact on the trade potentials. This article uses gravity model framework to capture the impact of global financial crisis on the trade potentials of Asian economies, namely China, Malaysia, Singapore, Indonesia, Philippines and South Korea with India in the post-crisis era. The selected Asian economies have been defined by IMF (International Monetary Fund) as ‘Emerging Asia’, which justifies their inclusion as a group despite heterogeneity in their growth patterns. The present study covers the period from 1995 to 2009 and deals with the annual data for bilateral trade flows and economic sizes of the countries taken in pairs. The gravity model equation is constructed on the basis of the mentioned variables and is further estimated within panel structure considering the presence of panel cointegration. The bilateral trade potentials of the selected Asian economies are computed empirically to examine their expansion and contraction patterns of their trade participation with India in the post-crisis era. This study points out serious concerns relating to protectionism, transport cost and liberalization policy. Among the economies in Emerging Asia, China and Philippines have reflected expansion in trade potentials amid the financial crises as far as its participation in global trade with India is concerned. This calls for India to adopt a selective and cautious approach in choosing trade partners within Emerging Asia.