INDO-CHINA TRADE,YUAN IN SDR BASKET AND THE WORLD ECONOMY

INDO-CHINA TRADE,YUAN IN SDR BASKET AND THE WORLD ECONOMY

ABSTRACT

               

  The paper studies that India’s export and import intensity are positively related with GDP growth rate and both are increasing during 1986-2014.Johansen cointegration test asserted that Trace statistic has 6 cointegrating vectors and Max Eigen statistics has 3 cointegrating vectors among export intensity, growth rate, world share of FDI, world share of foreign exchange reserves, US$/yuan exchange rate.VAR model is stable and variables are related with previous period. In Johansen cointegration test among import intensity, growth rate, world FDI share, world foreign exchange reserve share, US$/yuan exchange rate,it was found that Trace statistic has 3 cointegrating vectors and Max Eigen Statistic has 2 cointegrating vectors and VAR model is stable. It is verified that one percent increase in India’s world share in FDI and dollar-Yuan exchange rate per year led to increase in trade intensity of India to China in export by 0.33% and 1.953% respectively per year significantly during 1986-2014. Moreover, one percent increase in India’s world share in FDI, Chinese global share of FDI, dollar yuan rate and India’s global share of foreign exchanges per year lead to increase in trade intensity of India to China in import by 0.148%, 0.272%,0.912% and 0.622% respectively per year significantly during 1986-2014.

The paper explained that the Chinese Yuan is included in SDR basket with effect from 1/10/2016 in which the decision was delayed and its weight in the basket is underestimated having unchanged the weight of US dollar. It is proposed to reconsider weight of SDR basket by using world share of international trade as percent of world GDP or by total trade as percent of world trade. If SDR be considered as international money in the offing then inclusion of rupee, ruble, rand, Australian dollar, ECOWAS’s common currency should be reconsidered for wider and equitable importance of SDR basket.

The paper reviewed the importance and domination of Indo-China trade in Asia and world in the ancient past but India China relation has broken after the 1962 war and revived again since 1990s.In recent years’ Indo-China cooperation in trade, commerce, money and finance have been incorporated in the paper giving emphasis on their strategic role in the world economy because India China ties can lead to Asian Economic Integration process and financial integration linkages realizing AMF and in the areas of Indo-USA defense treaty, Japan-USA defense treaty, Indo-Russian cooperation, Pakistan China cooperation , Indo-Japan economic cooperation and Indo-ASEAN+3 cooperation respectively.

Key words-Trade intensity,SDR,growth,VAR,cointegration

JEL-C13,C22,F15,F33,F53