1 Implications of the Growth of China and India for the Middle East and North Africa Elena Ianchovichina, Maros Ivanic and Will Martin ♣ The Middle East and North Africa (MENA) region is expected to benefit more than most other regions from continued rapid growth in China and India. This paper analyzes the trade-related implications of this growth for the MENA countries using a global general equilibrium model, modified to take into account the focus of China and, increasingly, India on exports of manufactures from global production chains. We find that most of the gains to the MENA region come from improvements in the terms of trade, particularly linked to increasing demand for energy. Increased competition from China and India in third markets, coupled with increased domestic demand due to the terms of trade improvement, would reduce aggregate exports by MENA countries, although exports from the non-oil economies will likely expand. In the oil-exporting countries of the Middle East, Dutch-disease effects increase the importance of policies to promote adjustment to the changing world environment and to take advantage of the opportunities created by the growth of China and India. Introduction A key feature of the economic growth of China and India has been even more rapid growth in their trade – arguably the strongest and most direct channel through which China’s, and more recently India’s, growth are affecting other developing countries. China accounted for almost eight percent of world exports of goods and services in 2007—substantially more than her share of world GDP at market prices (estimated at 5.9 percent). 1 China’s openness is high for a large economy, in part because as much as a third of the value of exports comes from imported inputs (Winters and Yusuf 2007). India is smaller and less open, with 1.3 percent of world exports and 2.2 percent of world GDP in 2007. With annual export growth of nearly 20 percent per year over the period 1995 to 2005, China and India together accounted for 12.8 percent of the total growth in world exports, over fifty percent more than the 8 percent contributed by the United States. While the turbulence associated with the current financial crisis seems likely to cause substantial fluctuations, the underlying trend rates of growth in China and India seem likely to remain strong. ♣ Will Martin is Research Manager, Rural Development, Development Research Group, World Bank, 1818 H St. NW, Washington, DC 20433, Ph: 1-202-473-3853, Fax: 1-202-522-1159, Email: wmartin1@worldbank.org . Elena Ianchovichina is Senior Economist, Economic Policy and Debt Department, World Bank, 1818 H St. NW, Washington, DC 20433, Ph: 1-202-458-8910; Fax: 1-202-522- 3740, Email: eianchovichina@worldbank.org . Maros Ivanic is Economist, Development Research Group, World Bank, 1818 H St. NW, Washington, DC 20433, Email: mivanic@worldbank. org. 1 Source: World Bank, Development Data Platform (DDP) system, August 2009.