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Asian Drivers

The Direct and Indirect Effects

The impact of China and India on other economies may be felt through a combination of direct and indirect effects. In general, the direct impacts are much more visible and easier to compute and hence may appear to be more amenable to a policy response.

Direct impacts

Many of the key impacts of the Asian Drivers are felt as a consequence of direct bilateral links. For example:

  • China and India export products to other low-income economies which may lower consumer prices, and supply cheap machinery and inputs
  • Commodity-rich economies may gain by exporting directly to the Asian Drivers
  • FDI from the Asian Drivers may enhance productive capabilities

Indirect impacts

Other impacts are more indirect in nature, and are experienced in third-country or global settings: For example:

  • Chinese manufactured exports make export oriented manufacturing much more difficult for other countries
  • Commodity producers may not export directly to the Asian Drivers, but may gain indirectly as a consequence of higher world prices resulting from rising Asian Driver demand in global markets
  • India’s acceptance of global intellectual property rights in pharmaceuticals reduces the availability of low-cost generics drugs

The Indirect effects may often be more important

In many cases, the indirect impacts may be much more severe than the direct ones. For example, Central American and SSA clothing exporters may gain from direct links such as the import of cheap and high quality fabrics from the Asian Drivers. However, on the export side, they may experience overwhelming competition from Asian Driver producers in external markets such as the US or the EU.

But the indirect impacts may be more difficult to discern

In general the indirect effects are much more difficult to compute, and can thus be easily ignored. For example, to what extent are global interest rates a consequence of high Chinese personal savings? Because they occur in global interactions, it may therefore also be much more difficult for individual countries to take action to counter the harmful impacts of indirect effects.