One crude measure of relative sophistication or entrepreneurial capability is how much direct investment (FDI) these countries are exporting, especially to the richer countries and especially in sophisticated sectors.
Based on new data on mergers and acquisitions, Aaditya Mattoo of the World Bank and I calculated that India’s FDI exports to the OECD countries overall and even in the manufacturing sector were substantially greater than China’s (measured as a share of GDP).
China is rightly considered the world’s manufacturing powerhouse and export juggernaut, and yet in the manufacturing sector, Indian entrepreneurial and managerial capital (in the form of FDI) has been more successful than China’s in taking control of and managing assets in the sophisticated markets of Europe and the US.
So, while both private sectors have improved, India can claim today that it is ahead of China in fostering entrepreneurial capitalism.
That’s Arvind Subramanian writing in Business Standard. In spite of India’s entrepreneurial talent, however, Arvind thinks that it will lag behind China in growth.
Why? It’s easier to be entrepreneurial than build a strong state. Institutionally, he argues, India is deteriorating.
I’m not convinced that India’s government is so weak, or that the situation is getting worse.
And even if true, it’s not clear to me that a vibrant private sector is less important to long term growth than a strong (controlling?) state, as in China. Arvind could be right, but I’ll wait for the evidence. The next article or book, perhaps?