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June 20, 2007

China's and India's growth analysis

A recent paper by Barry Bosworth and Susan Collins of the Washington-based Brookings Institution compares performance over the 1978-2004 period. After 1993 it compares India’s post-1991 reforms with China.

Accounting for Growth: Comparing China and India, Working Paper 12943, February 2007, National Bureau of Economic Research, www.nber.org


Breakdown shows close to equal service growth.

With a remarkably open economy and gross fixed investment at 43 per cent of gross domestic product last year, it is hard to identify significant constraints on China’s growth in the medium term. A breakdown in the global economic and political system would presumably do it. So might domestic political or social instability. In the long term. Failure to persist with reform would also be a danger.

India’s fixed investment has been far lower. But it is already close to 30 per cent of GDP. If the fiscal position continues to improve and the inflow of long-term capital from abroad to accelerate, the investment rate could rise still further. Partly because infrastructure is poor and industrial performance disappointing, the upside for Indian growth is also bigger than for China’s. But India also suffers from serious handicaps. The most important, apart from weak infrastructure and a relatively ineffective government, is the scale of mass illiteracy. Adult male literacy was only 73 per cent and female literacy a deplorable 48 per cent in 2002, against 95 and 87 per cent, respectively, in China.

Chindia is on the move. Since China’s standard of living is roughly a fifth of that of the high-income countries and India’s one-tenth, the fast growth of the giants might persist for a generation.


A detailed pdf analyzing China's purchasing power GDP

It is part of this study:
Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.2, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, September 2006.

FURTHER READING
My projection that shows that China's economy is likely to become bigger than the USA economy by around 2020 Mainly work in the appreciation of chinese RMB against the US$ and continuation of growth at over 7% per year versus USA 3%.

My analysis that China is urbanizing faster than official chinese reports and China in the past has been consistently underestimating future urbanization rates

China's one child policy is eroding and a population growth rebound is likely

China's military will be proportionally big

China is building a lot of hydro power
and
China might make 300+ nuclear power plants by 2050

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