Question

Use WDI data and your textbook (Grabowski et al) to answer the following question. Both India
and China progressed from slow to modest growth before 1980 to more rapid rates of growth after
1980.
(a) What similarities can be drawn between the two countries’ experiences?
(b) What are some of the fundamental differences in the two countries’ experiences

Answer 1

a.

In the past two decades, China and India have liberalized domestic economic policy, the treatment of foreign investment and trade, and have enjoyed sustained economic growth at high rates. However, from the perspective of the United States, the most important development in the Chinese and Indian economies in the long term could be the progress they are making in developing their own national capacities for innovation. After a long period of low investment, the two countries commit to develop their scientific and educational systems to support research and continue economic expansion.

Some observers of recent growth have said that the two countries are stepping up their efforts to stimulate innovation; others highlighted the potential of one country relative to another; and others have suggested that China and India still have a long way to go before achieving innovation-led growth. With such a wide range of perspectives, the National Academies set out to describe developments in the two countries, with each other and with the rest of the world, by organizing a conference in Washington, DC. The conference, summarized in this volume, discussed recent changes both at the macro level and in some industries, and explored the causes and implications of these changes.

b. China's semi-capitalist economy has already overtaken the economies of France, Germany and Japan to become the second largest economy behind the United States. India is about a third the size of China. Today, China leads India in terms of population with 1,371.22 million inhabitants against India with 1,311.05 million, but India is growing at a faster rate and has a young population. Chinese economy has experienced extremely surprising growth in recent decades which has pushed the country to become the second largest economy in the world. In 1978, when China launched the economic reform program, the country ranked ninth in nominal GDP with $ 214 billion, 35 years later it moved to second place with nominal GDP of 9.2 trillion dollars. Since the introduction of economic reforms in 1978, China has become the world's manufacturing center, with the secondary sector (including industry and construction) accounting for the bulk of GDP. In 2015, the Chinese economy lost its growth target of 7.0% for the year by 0.1 percentage points, marking the first time in two decades that growth has been below target. Investments in manufacturing and infrastructure are slowing as the country moves from a growth model focused on investment to one more focused on consumer demand. Growth in China will continue to slow while growth in India will reach one of the highest levels in the region, at 7.56. The slowdown in the Chinese economy will continue to affect the growth prospects of the rest of the region as export demand decreases and trade flows investment is declining, although countries vary in their level of exposure to these risks (OECD, 2016). Despite this stronger Chinese economy, it could be judged by indicators such as higher tax revenue, nearly three times GDP per capita, more than double Grass's national per capita income, the current account balance and a low rate inflation (see Table 1). Given the better quality of infrastructure and better production techniques in China, it is not surprising that the average Chinese worker produces 1.6 times more output than the average Indian worker. This shows that China's productivity as a nation is 60% higher. The manufacturing sector is the main engine of growth in China. China leads India in terms of manufacturing. India's manufacturing sector faces multiple structural problems, such as irregular electricity supply, slow transport systems and lack of skills.