Leadership displacement and the redesign of global governance: The race of China and India+

Although past history contains examples of the rise and fall of world leading economies, the catch-up trends of China and India are unique. The paper highlights four unique features in leadership displacement. First, when economic, demographic, and regional interactions are formally considered, leadership displacement would be of a greater magnitude than is implied by simple GDP comparisons. This is demonstrated by applying an index of interactive influence. Second, the two economies appear to be more complementary to each other than competitive, which deepens the displacement effects. Third, although any catching up tendency is subject to external and internal uncertainties, yet an assessment of the external uncertainties suggests a likely acceleration of the displacement, while a brief analysis of involved internal risks suggests that such risks have subsided and are fading. Fourth, and foremost, China and India have distinctly different socioeconomic and polity systems than today's firm-dominated leading countries such as US and EU. The systemic differences are likely to accentuate externality problems at the global level. And given these systemic differences, resolution of the externality problems would require substantive redesigns of current rules of global governance.