Barbados Presentation 5

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Socio-

EconomicDevelopmentStrategies:India andChina

Thorvaldur Gylfason Thorvaldur Gylfason



Compare the developmentstrategies and trajectories of thetwo economic giants of AsiaOne obvious difference

India is a democracyChina, though, is not

Many other differences, andsimilarities that include

Low foreign debtsLong coastlinesLarge overseas communities

Two giantsTwo giants

W h a t ’s t h e s t ory? W h a t ’s t h e s t o ry?



India and China: GDP per

capita 1820-1950 ( constant 1990US dollars)

0

100

200

300

400

500

600

700

800

1820 1913 1950

China

India

China wasChina wasricher thanricher thanIndia 200India 200years ago,years ago,butbutIndia didIndia didbetter thanbetter thanChinaChinathereafterthereafter



India and China: GDP per

capita 1820-1950 ( constant 1990US dollars)

0

100

200

300

400

500

600

700

800

1820 1913 1950

China

India

SinceSince1950,1950,however,however,China hasChina hasgrowngrownmoremorerapidlyrapidlythan India,than India,albeit lessalbeit less

evenlyevenlyWh ?Wh ?



India and China: GDP per capita

1975-2003 ( ppp, 2000 internationaldollars )

Ch in a 7 .7 %Ch in a 7 .7 %

A frica A frica -0 .5 %-0 .5 %

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1 9 7 5

1 9 7 8

1 9 8 1

1 9 8 4

1 9 8 7

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 9

2 0 0 2

China

India

Sub-Saharan Africa

In d ia In d ia 3 .2 %3 .2 %



India and China: GDP per capita

1960-2003 ( 2000 international dollars )Ch in a 5 .7 %Ch in a 5 .7 %

A frica 0 .5 %A frica 0 .5 %In d ia 2 .5 %In d ia 2 .5 %

0

200

400

600

800

1000

1200

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa



India and China: Life expectancy

at birth 1960-2004

0

10

20

30

40

50

60

70

80

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

PersistentPersistentrise in liferise in life

expectancyexpectancyas well as inas well as inotherotherhumanhumandevelopmedevelopmentntindicatorsindicatorsin bothin bothChina andChina and



What it takes totogrowgrowI. Saving and investmentPhysical capital

I. Education, health careHuman capitalI. Macroeconomic stabilityFinancial capital

I. Exports and importsForeign capital

I. DemocracySocial capital

I. DiversificationAway from natural capital

U ndis p u ted

Co n t ro ve rsia



Three main sourcesThree main sources

of of economic growtheconomic growth

I n v e O p e E d

G r o+ ++

denotes a positive effect in the direction shown+



Three further sourcesThree further sources

of of economic growtheconomic growth

I n v e O p e E d

G r o+ ++

Democracy Diversification

+ +

Le t ’s n ow look a t t h e s e

fa c t o rs on e b y on e

Econom ic vs . p o li t ica l d ive rs i f ica t ion

Stability+



Investment 1960-20040

5

10

15

20

25

30

35

40

45

50

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

In China,moreinvestment

and morerapideconomicgrowth, but …

% of GDP




5

10

15

20

25

30

35

40

45

50

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

In China, ittakes almostalmosttwice astwice as

muchmuchinvestmentinvestment togrow roughlytwice as fastas IndiaChinesebanks havemorenonperforming loans than

% of GDP




5

10

15

20

25

30

35

40

45

50

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

In China, ittakes 4141daysdays to

obtain thelicensesnecessary tostart abusinessIn India, ittakes 8989daysdays

% of GDP



Gross foreign direct

investment 1960-2004 Chinaattracts farmore foreign

capital thanIndia,especiallythrough jointventures

0

1

2

3

4

5

6

7

8

9

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP




investment 1960-2004 China appearsto have lessendemic

corruptioncorruption :27% of managers inChina viewcorruption asa majorconstraintcomparedwith 37% in

India

0

1

2

3

4

5

6

7

8

9

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP




investment 1960-2004 China appearsto have lessendemic

corruptioncorruption : TransparencyInternationalin Berlin givesChina 3.4 forcorruption andIndia 2.8 on ascale from 1to 10

0

1

2

3

4

5

6

7

8

9

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP



Inflation and

financial depth 1960-2004 China’sinflation 1961-2003 was 3.2%

per year onaveragecompared withIndia’s 7.6%China’sliquidity grewfasterLiquiditylubricates the

wheels of

% of GDP0

20

40

60

80

100

120

140

160

180

200

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP



Inflation and

financial depth 1960-2004 China’s marketcapitalizationof listed

companiesincreased fromscratch in 1991to nearly 50%of GDP in 2003India’s figure isalso a bit lessthan 50%

% of GDP0

20

40

60

80

100

120

140

160

180

200

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP



Exports 1960-20040

5

10

15

20

25

30

35

40

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa % of GDPChina’sexports of goods and

services haveoutpacedthose fromIndiaIn China,taxes ontaxes ontradetrade arenow 9% compared

with 16% in



Adult female literacy

1960-2004 China hastaught morefemales than

India how toread andwrite

The youthyouthfemalefemaleliteracyliteracy ratein China is99% compared

with 65% in

0

10

20

30

40

50

60

70

80

90

100

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

2 0 0 4

China

India

Sub-Saharan Africa

%



Adult female literacy

1960-2004 China sendsChina sendsalmostalmost 70% of herof her

youngsters toyoungsters tosecondarysecondaryschoolschool comparedcomparedwithwith 50% ininIndiaIndia““ An educatedAn educatedchild doeschild doesnot want tonot want to

plant rice”plant rice”

0

10

20

30

40

50

60

70

80

90

100

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

2 0 0 4

China

India

Sub-Saharan Africa

%



Agriculture 1960-2004 China hasdone morethan India to

transfer laborfrom the landWhere haveall theworkersgone?

0

10

20

30

40

50

60

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

2 0 0 4

China

India

Sub-Saharan Africa

% of GDP



Manufacturing 1960-2004 Ruralworkers inChina have

flocked intomanufacturing In India,the servicessector hasexpandedrapidlyHardwareHardware vs.vs. softwaresoftware

0

5

10

15

20

25

30

35

40

45

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

% of GDP



The results so farThe results so farChinaSaves and invests more than IndiaAttracts more foreign capital

Has less inflationExports more goods and services Teaches more females how to read Transfers her labor more rapidly out of farming into manufacturing and services

Small wonder, then, that China growsmore rapidly than India

Even without democracy!



Common legacy of foreign influence ordomination followed by communism orsocialismMarket-friendly reforms started earlier inChina than in India

1978 in China1991 in India

So, China has been reforming her

economy twice as long as India… and more rapidly and radically

China startedearlier



Again, one glaring differenceIndia is a democracy

China is notDoes democracy impedeeconomic growth?Is this, perhaps, why Indiahas grown less rapidly thanChina since 1950?

The role of The role of democracydemocracy

Ne x t q u e s t ion



Two theoriesTwo theoriesDemocracy is good for growth, and so areinvestment, education, etc.

Reason: democracy fosters efficiency by facilitatingchange of government, and efficiency is good forgrowth

Democracy hurts growth, or worseReason: democracy plays into the hands of pressuregroups that tend to abuse their power at publicexpense



Growth and

political liberties 1965-98

CentralAfricanRepublic

Brazil DemocracyDemocracyis good foris good forgrowth:growth: No visibleNo visiblesign thatsign thatdemocracydemocracystands instands inthe way of the way of economiceconomicgrowthgrowth

-8

-6

-4

-2

0

2

4

6

0 2 4 6 8

Index of political liberties 1972-90

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8 , a d

j u s t e d

f o r

i n i t i a l i n c o m e

( % p

e r y e a r )

r = -0.62r = -0.62

Botswana

China

Niger

Venezuela

Korea

8 5 cou n t rie s8 5 cou n t rie s

India



Growth and political

liberties 1965-98

CentralAfricanRepublic

Brazil

-8

-6

-4

-2

0

2

4

6

0 2 4 6 8

Index of political liberties 1972-90

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8 , a d

j u s t e d

f o r


( % p

e r y e a r )

r = -0.62r = -0.62

Botswana

Niger

Venezuela

Korea

PoliticalPoliticalliberty isliberty isgood forgood forgrowthgrowthbecausebecauseoppressionoppression

breedsbreedsinefficiencinefficiency,y,and soand so

doesdoes

China

India



Growth andGrowth and

democracydemocracy 1960-2000

1 4 4 cou n t rie s1 4 4 cou n t rie s

De m ocra cy De m ocra cy a n d g row t h a n d g row t h s e e m t o g o s e e m t o g o

t og e t h e r t og e t h e r

-8

-6

-4

-2

0

2

4

6

8

-10 -5 0 5 10

Index of democracy 1960-2000

G r o w

t h o

f G D P p e r c a p

i t a 1 9 6 0 - 2 0 0 0 , a d

j u s t e d

f o r


( % p

e r y e a r )

r = 0 .4 8r = 0 .4 8

Eq u a t oria lGu in e a

Mala ys ia

Sin g a pore

Mu s t look e ls e wh e re for a n

e xp la n a t ion



Education andEducation and

democracydemocracy 1960-2000Eq u a t oria lGu in e a

Mala ys ia

Sin g a pore

Mu s t look e ls e wh e re for a n

e xp la n a t ion

1 2 6 cou n t rie s1 2 6 cou n t rie s

De m ocra cy De m ocra cy a n d a n d e d u ca t ion g o e d u ca t ion g o

h a n d in h a n dh a n d in h a n d

0

20

40

60

80

100

-10 -5 0 5 10

Index of democracy 1960-2000

S e c o n

d a r y - s c h o o

l e n r o

l m e n

t o

f g

i r l s 1 9 7 0 - 8 8

( % )

r = 0 .6 2r = 0 .6 2



DemocracyDemocracy 1946-1946-20002000De m ocra cyDe m ocra cy

Olig ocra cyOlig ocra cy

Au t ocra cyAu t ocra cy

1 9 4 6 : 2 0 ou t o f 7 01 9 4 6 : 2 0 ou t o f 7 0

2 0 0 0 : 9 0 ou t o f 1 7 02 0 0 0 : 9 0 ou t o f 1 7 0

Numberofcountries

Numberofcountries



Measures to combat corruption

Corruption perceptions index from Transparency International

Measures to enhance equalityGini index

What do the data say?

Other ways to build up social capital




corruptioncorruption 1965-1998


Honesty isgood for

growthbecausecorruptioncreatesinefficiency

Sm a ll d i f fe re n ce

r = 0 .4 0r = 0 .4 0

-6

-4

-2

0

2

4

6

0 1 2 3 4 5 6 7 8 9 10

Corruption index 2000

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8 , a d

j u s t e d

f o r


( % p

e r y e a r )

China

India




inequalityinequality 1965-1998


Equality isEquality isgood forgood forgrowthgrowth ::

No visibleNo visiblesign thatsign thatequalityequalitystands in thestands in theway of way of economiceconomicgrowthgrowth

-6

-4

-2

0

2

4

6

0 10 20 30 40 50 60 70

Gini index of inequality, various years

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8

, a d j u s t e d

f o r


( % p

e r y e a r )

China

India

r = -0 .5 0r = -0 .5 0

Big d i f fe re n ce




inequalityinequality 1965-1998 Gini-Gini-coefficients:coefficients:• India 33India 33• China 45China 45

-6

-4

-2

0

2

4

6

0 10 20 30 40 50 60 70

Gini index of inequality

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8 , a d

j u s t e

d

f o r


( % p

e r y e a r )

China

India

r = -0 .5 0r = -0 .5 07 5 cou n t rie s7 5 cou n t rie s

Big d i f fe re n ce



One more thing:One more thing:

FertilityFertilityChina adopted a one-child policy in 1980Relaxed it subsequently to allow twochildren – if the first was a girl

300 million fewer Chinese today thanotherwise would have been the case This should be good for growth

India did no such thingIndia’s population is forecast to overtakeChina’s by 2025



Births per woman

1960-2004 Less rapidpopulationgrowth

means fewerfewermouths tomouths tofeedfeed andandfewer mindsfewer mindsto educate,to educate,allowingallowingbetter carebetter carefor eachfor eachchild, andchild, and

hencehence moremore

0

1

2

3

4

5

6

7

8

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

China

India

Sub-Saharan Africa

Number of births



Child mortality

1960-2004 More andbetter healthcare and

educationhave helpedreduce childmortality inChina and inIndia, andacross theworldLet’s take a

look

0

20

40

60

80

100

120

140

160

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

2 0 0 4

China

India

Sub-Saharan Africa

Per 1,000 live births



Fertility and growth

1960-2004 Fewer birthsgo along withhigher growth

Fewer birthsincrease andimprovehuman capitalRankcorrelationbetweenfertility andeducation is

-0,90-0,90

-8

-6

-4

-2

0

2

4

6

0 1 2 3 4 5 6 7 8

Fertility 1965-98 (Life births per woman)

G r o w

t h o

f G N P p e r c a p

i t a 1 9 6 5 - 9 8 , a d

j u s t e d

f o r


( % p

e r y e a r )

r = -0.78r = -0.78


China

India



Fertility rate,

woman)

L i n

0.5

10.5

Mortality rate, under-5 (per 1,000 live births) Lin

3

520

100 200 300 400150 250 350

10

5

2

3

4

6

7

8

9

AfricaAm ericas

Arabcountries

AsiaEurope

Fertility and child mortality



PovertyPoverty 199919990

102030405060708090

Share of population living onless than one dollar a day

Share of population living onless than two dollars a day

ChinaIndiaSub-Saharan Africa

Eve n s o , In d ia h a s a

m ore e q u a l d is t rib u t ion

o f in com e , wi t h a Gin i

in d e x o f 3 3 com p a re d wi t h 4 5 in Ch in aEq u a li t y is g ood for

g row t h

% of population



Sir Arthur LewisSir Arthur Lewis gotgot

it rightit rightSince the secondSince the secondworld war it hasworld war it has

become quite clearbecome quite clearthat rapid economicthat rapid economicgrowth is availablegrowth is availableto those countriesto those countrieswith adequatewith adequatenatural resourcesnatural resourceswhichwhich make themake theeffort to achieve iteffort to achieve it

W. Arthur LewisW. Arthur Lewis(Accra, 1968)(Accra, 1968)



China and India are like othercountries , not special cases

What works for the rest of the world also

works for themEconomic policies and institutions thatspur investment, openness, education,health care, diversification, democracy,and family planning are good for growth

Conclusion:Conclusion: It can beIt can be

donedone Th e s am e a p p lie s t o A frica



Conclusion:Conclusion: It can beIt can be

donedoneTo grow or notto grow is inlarge measurea matter of

choice

To grow or notto grow is inlarge measurea matter of choice

Ma n y o f t h e Ma n y o f t h e con s t ra in t s on con s t ra in t s on

g row t h a re g row t h a re m a n -m a d em a n -m a d e , , a n d ca n b e a n d ca n b e

re m ove dre m ove d Th e En d Th e En d

These slides – and more! – can be

viewed on my website:www.hi.is/~gylfason

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