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1.IntroductionThe birth of two giants
China-the rise of CCP IN 1949
India independence in 1947 China copycat of soviet model
India-democratic and decentralized
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Similarities Population explosion
Socialism as economic model
State as a promoterAgriculture and rural push
Infighting and external tension
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Underperformance and
Comeback Since 1950 till 1980 growth rate of China -2.3% .India-
1.3-1.5%.
World as a whole grew at 2.9%. Internal economic instability in china
External political problems of India
Voluntary economic isolation
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2. Sources of economic growth
The outputs of goods and services of an economydepends on quantities of inputs like capital and labour.
Aggregated production function
Y=A.F(K,L)
where Y = GDP, A = Joint productivity of factors,K =capital, L = labour.
Growth of Hong-Kong and Singapore from 1966-1991.
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Growth Dynamics Neoclassical Model
This model establishes the relationships between thegrowth rate of a country, the size of its saving rate, its
labor force growth rate and the growth rate of jointproductivity
A common prediction of these models is that aneconomy will always converge towards a steady state rateof growth, which depends only on the rateof technological progress and the rate of labor forcegrowth.
If there is no productivity growth, the economy willreach the steady state equilibrium in the very long run.
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Determinates of Long run living standards When the saving rate rise
When growth rate of labour force falls
When Joint productivity rises
Polices to step-up living standards Improve infrastructure
Building up human capital
Remove barriers to entrepreneurial activities
Encourage research and development
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Endogenous Growth Theory This theory tries to explain the foundations of the
evolution of the joint productivity of factorsendogenously
In the long run per worker growth rate will depend onits rates of saving and investment and not onproductivity growth
Y=AK 2 main reasons
Role of human capital growth
Research and development activities
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Problem of population in
developing countries The theory of demographic transition
Demography in traditional society
Stage of population explosion Final stage of demographic transition
Growth of labour supply
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Growth and structural change More per-worker income grows less will be income
fraction devoted to food expenditure. Demand for foodwill grow less compared to production in other sectors.
Agriculture as tended to progress more quicklycompared to other sectors thus reducing the number of
workers required.
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3.Chinas Economic History-1949 Effects by Great Leap Forward(1958-1960) & the
Cultural Revolution
GDP rose around 80% Maddison suggested 4 economic targets:
Radical reform of property rights
Achievement of sufficient public revenues
Substitution of former price system
Monopolization by the state of all external economicrelations of China
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Agricultural Policy:
Phase 1-Confiscation of half the cultivated land
Phase 2-Peasants lost their property rights
In 1958, communes were created. Led to shift of 30million Chinese workers, caused a dip in theagricultural per capita production, created famine.
New Agricultural Policy:
Mao died, new politicians redistributed the land withresponsibility contracts to families.
Rural land was still not tradable
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Industrial Policy:
CCP prioritized fast industrialization
Industrial production multiplied by 43 between 1952-1995
Agricultural output multiplied by 4 times
Size of industrial public firms remained small.
Employment stabilizedForeign firms were confiscated
Workers were returned
Joint productivity-0.5%
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Financial Sector:
In 1990, the Shanghai Stock Exchange was started
Post reform, Peoples Bank changed into a CentralBank
Income distribution:
Gini Index rose to 0.45 in 2001 from 0.4-0.41 in 1996
Gross national savings reached 43.7 percent inGDP terms.
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International Economic Relations:
1971- UN & Security Council
In 1980
WB & IMF1982- ADB & GAT
2003- WTO
Creation of SEZ
Chinese exports =29% of their GDP
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Issues Problems Faced:
Public Firms faced huge loses and turned into burden forEconomy.
Re-allocation human resources. Under valuation of the Yuan.
Negative distribution of Income.
Urbanization.
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4.Indian Economy-1947 Crippled Economy with a scant Industry & a stagnant
Agriculture at the time of Independence
Effects of Industrial Revolution in England Effects of Swadeshi Movement, 1st&2nd World War
Colonial Mistreatment of Indian Commerce
Financial Mistreatment of India
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Evolution of AgricultureAgriculture Contribution to Population & GDP
Contribution towards Industry and Exports
Green Revolution and Land Productivity PDS and Subsidies
Land Reformation and its flaws
Types of Rural Financing
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Indian Industrial Policy Industrial Policy (1956)
-Quick Industrialization, Encourage SSIs
-Removal of Disparities of per capita income
Negative Industrial Policy (1977)
-Support SMI and LSI sector redefined
-Significant part of banking redirected to SSI
Restated in 1980,-Automatic Expansion of LSI
-Private formal manufacturing sector flourished
-Joint Productivity of Factors jumped to 3.7%
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New Industrial Policy(1991) Removed License Permit Raj
Opened some public sectors to private
Opened the economy for Investments from MNCs Liberalized Import & Export duties
Resulted in High Economic Growth
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Population Growth & Employment Current Growth Rate is 1.9%
Population Policy aim TFR to 2.1 children
Rising Female Education
Labor force increases to 1.8-2%
Jobs would be raised to 8 million
Only 8% are working in Organized Sector
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Financial Capacity Indian Internal Savings
The Indian Financial System
External & Internal Financing in India Evaluation of Indian External Debt
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5. Socio Economic Factors Poverty
Per capita consumption of electric power
Growth rate
Population growth
Per capita GDP
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Structure of GDP China
Agriculture-15%
Industries-51%
Services-34%
IndiaAgriculture-23%
Industries-27%
Services-51%
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Commercial Trends International structure
Intra-regional trade-evolution in the 90s
Chinese-Indian trade Limits of Chinese-Indian trade
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Internal Obstacles Political problems
Economic problems
Income distribution The banking system
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Financing Process Savings in terms of GDP
FDI
International reserves
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6.Possible Hindrances Of
India & ChinaMore factors hindering the convergence:
Inaccurate thinking and biased behaviour of internationaleconomic institutions.
IMF forced the developing countries of the region to practise abeggar-thyself policy.
Adjustment Programmes devised by the World Bank have alsobeen accused to increase inequality.
Current trend in international trade have been conducive due to
the defective access of agricultural and service products comingfrom the developing countries Rich countries have for years put pressure on developing
countries on certain matters, such as competition, labour-socialdevelopments, environment matters, etc.
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Asias Growth Factors essential for the growth: The continuation of the current relative divergent trends in
GDP growth rates of these regions in comparison to thoseof western countries.
The continuation or not of the same behaviour of the westin the treatment of imports of goods coming fromdeveloping countries.
In 2015, 23-24% of total exports, instead of 13-14%
Now 2015 2020
High Income 75% 65% 60%
Low & MiddleIncome
25% 35% 40%
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UN BifurcationIf the current international framework worsens,damaging the economies of the developing countries,UN bifurcation could occur.
Reasons:
Due to generalised feeling of lack of representation ofthe interests of the developing countries - for instance
IMF and World Bank Insufficiency of results in WTO negotiations
Widely perceived misuse of the UN by the hegemonicpower and its allies in international policy matters
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Probable Strategies in the
Current Commercial Framework Encouraging International Economic Relations with
Neighbouring Countries
Facing Future Scarcity of Oil
UN Reform Attempts by China and India and SecondaryWay Out
Obsoleteness of the UN
Unilateralism and Political Re-Positioning of China andIndia
Financing Development of LDC by China and India
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CONCLUSION
An Insight Into The Future
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Aggregate Conclusion Total available savings in terms of GDP will be the
main conditioning variable for rapid growth
According to the neo-classical model of growth andthe endogenous growth theory ,the domesticinvestments ratio in GDP terms is the main variablefor growth rate of nations.
China Domestic rate of invest 40% .it should bedecreased to 32-34% alleviate problems like incomedistribution, internal consumption, super growingindustrial export.
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Current deficiencies in China The definition of property rights
The partial segmentation of its labour market
Lacks a sufficient social security system
Underdeveloped banking system Very unbalanced growth from a geographical prospective
The setting up of SEZ has generated a temporary overstimulation of industrial production tilted to exports and
construction. The setting up of SEZ to encourage FDI has generated a
two speed economy and a significant distributionproblem.
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Current Deficiencies in IndiaAgriculture productivity is low.
Technical, social and institutional factors haveimpeded an adequate progression of agricultural andagro-industrial activities.
The current volume of tax revenues of union and statesis clearly insufficient to adequately improve the
volume and quality of the provided public services. The recent rate of Indian population growth.
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Advantages of China & India in
todays world Current high speed of economic progress.
As a consequences of past rapid population rises ,bothcountries will for long have ,ceteris paribus ,higher
growth rate of their labour force. Huge deposits oftransferable people attached to agricultural activitieswith nil marginal productivity will be additionalsupport.
The commercial success of China and India will befacilitated by the rapid growth rates of neighbouringcountries, some of them much more developed thanthe two asian giants.
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Perspectives & Difficulties in the
futureAs consequences of the current and expected growing
shift of western demand of manufacture products toasia ,low wages of industrial workers in asia, the
continuation of a rapid increase of Asian industrialexports to the west is ceteris paribus.
A massive creation of jobs is guaranteed in Asia
Main asian developing countries ,particularly chinaand india ,stress their levels of mutual economiccooperation.
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Strategies of the West Doing nothing
Would pursue the slowdown of the growth of importscoming from Asia, by lifting certain trade barriers.
Decidedly entering into a process of commercialrestriction , which at the end of the day would be moreprejudicial for the west.
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Reactions of china & India If economic or political initiative taken by the west
were considered as seriously damaging for the maindeveloping countries ,then under the leadership of
china and India a majority of developing countrieswould establish an alternative to the current UN.
A process of bifurcation of UN would occur.
China and India enhanced their current growinginvolvement in aid to poorest countries by establishingsignificant funds for the development financing ofLDC.