CHINDIA’s export expansion: impacts on the small island developing states of CARICOM

Abstract

Purpose This paper assesses the trade impact of China and India’s (CHINDIA) expansion on the small island developing states (SIDS) of the Caribbean Community (CARICOM). It assesses both CHINDIA’s competitive threat to CARICOM’s exports in third markets and the spillover trade opportunities for the region from CHINDIA’s rapid growth. Design/methodology/approach We employ a series of competition measures to estimate CHINDIA’s impact on CARICOM's exports in its largest export destination, the United States (US). We then estimate a gravity model to assess CARICOM’s bilateral trade opportunities with CHINDIA along with the explanatory power of the Linder hypothesis in Southern trade between large and small exports. Findings CHINDIA’s export threat to CARICOM in the US market is low due to a divergence in export specialization patterns. Our econometric results highlight spillover export opportunities for CARICOM with the rapid growth of the Asian giants. We also find evidence that the Linder hypothesis has low explanatory power, suggesting that trade between SIDS and large diversified exporters should be assessed within the Ricardian–Heckscher–Ohlin framework. Practical implications Estimates of low competitive threat coupled with growth spillover opportunities suggest that trade friendly policies in greater openness and transport infrastructure development are required by CARICOM to maximize export opportunities stemming from CHINDIA’s expansion. Originality/value This is the first study to assess the trade impact of large, diversified exporters such as CHINDIA on SIDS in CARICOM. By integrating export threat measures and gravity modeling, we provide evidence and practical insights on Southern trade dynamics between small and large economies.