Question

In 1980's India's GDP per capita and China's GDP per capita were about the same, with the former slightly higher than the latter. In the next three decades, however, China economy grow faster than India economy. In this question, I want you to provide explanations to explain why China economy grow faster than India economy. Your explanations should be based on the course materials and the facts I provide below. In other words, you do not need to do any extra research to answer this question.

Here are the three facts/events between China and India:

1) China adopt a so-called One Child Policy and as a result, China population growth rate is lower than India population growth rate.

2) China saving rate is higher than India saving rate. For example, economists at the IMF estimate that China saving rate is about 45.8% of its GDP in 2015, where as India saving rate is about 28.8% of its GDP for the same period.

3) According to Wharton magazine in 2015, China invests approximate 50% of its GDP to build infrastructure (such as building high speed railroad, airports, etc.) where India invests only 30% of its GDP for the same purpose.

In this question, you must utilize two of the three abovementioned facts/events to provide explanations. One of the facts/events must be fact (1) i.e. the One Child Policy. For the second facts/events, you can choose either fact (2) or fact (3), but not both.

To give you an idea the length of the answer, let me provide you with an example. This below paragraph is just for a single fact, so I expect two paragraphs (one for each fact)

"China spending on education is about 4% of its GDP, slightly higher than India (3%). Higher spending on education certainly help to accumulate a larger amount of human capital. With a more educated labor forces, China's worker productivity will be higher than their Indian counterparts."

Thank you!!

Answer 1

GDP per capita or Per Capita Income is the average income of an individual of a country. We can calculate GDP per capita by dividing total GDP by its population.

In 1980 India's GDP per capita  and China's GDP per capita were about the same. In the next three decades Chinese economy grows faster than Indian economy because China adopted the so-called one child policy.As a result of this China's population growth rate became lower than population growth rate of India.

Along with this policy, as pointed out by the wharton magazine in 2015, China invested approximately 50 % of it's GDP to build infrastructure like high speed roads, rails and airports. Whereas India invested only 30 % of its GDP for building such infrastructure.

Hence on the one side China's population growth became lower than India's population rate because of the one child policy of China and resultant reduction of the total population. On the other side China's 50% investment in infrastructure instead of India's 30% created a multiplier effect up on total GDP of China. So China's GDP has increased and population has decreased simultaneously during these period.  This is why Chinese economy grew faster than Indian economy in these three decades.