Author: Alemayehu Geda, Atnafu G. Meskel.

Abstract: In this paper, we address two major questions. First, the question of whether China and India are displacing the African manufacturing export from the third market. Second, whether there is an evidence of shifting comparative advantage from China and India to Africa. We employed a gravity model with a panel data using 13 African exporters of clothing and accessories for the period 1995–2005 to answer the first question. To answer the second question, we used a flying-geese model and estimated Spearman's rank correlation coefficients on indices of the revealed comparative advantage vectors of the African exporters and China and India for the same period. Both the gravity and flying-geese models predicted similar outcomes. We found that there is strong evidence that China has been displacing African manufactures from the third market while India has been complementing it in the early years of the study. However, the overall third market impact of China and India has been that of complementarity in the later years of the study period. This result is found to vary across countries. Furthermore, we found evidence of shifting comparative advantage from China and India to Africa as the flying-geese theory predicts, South Africa being the leading goose followed by Kenya. The major implication of the study is that, in the world where China and India are reshaping the global economic order dynamically, the outcomes of the traditionally received wisdom of trade liberalization and industrialization policies through export promotion may be uncertain and requires strategic thinking.