Why has China grown faster than India, and what do their futures hold?
I’m attending an outstanding development conference in Shanghai, and my senior colleague T.N. Srinivasan–a longtime expert on trade, growth, and Asia–is giving the keynote address. He tackles a topic no less large that the economic history and future of China and India.
(The presentation is here, and an earlier article is here.)
Srinivasan’s answer to the first question—why faster growth in China—boils down to three assertions and a conclusion:
First, productivity growth is king. Sustained growth in both countries comes from learning to make better things more efficiently.
Second, reforms stimulate productivity growth. In both nations, a period of intense economic and political restructuring (mostly towards markets) led to takeoffs in growth.
Third, the reforms followed major crises. In China, reform followed the failures of the Great Leap Forward and the Cultural Revolution, while in India it was the balance of payments crisis in the early 1990s.
So why did China take off sooner and faster than India? Because the crisis hit earlier. Today’s fruits of prosperity grew from the seeds of Mao’s disastrous policies.
What does the future hold? Well, Nobel Laureate Bob Fogel predicts that China will produce 40% of world production by 2050, and India just less than a third of that.
Both countries, by this reading, are resuming their historic dominance—in 1820 China and India produced a third and a sixth of world production. Fogel’s prediction also implies that China will continue to grow faster than India to 2050.
Srinivasan begs to differ.
In his view, India has higher potential for growth than China. India is younger, more rural, and engaged in lower productivity activities. A shift into higher productivity activities will only accelerate their growth.
He also stresses that India’s economy is more market oriented, has a more efficient financial sector, and more experience in domestic innovation and entrepreneurship. China, he says, has less room for improvement; the population is aging, is already better educated and healthier than India, and has less capacity to innovate. Growth will continue, but it may have peaked.
India’s acceleration hinges, however, on the right reforms. These Srinivasan enumerates. Of their chances of enactment, however, I am not sure.
I know too little of China and India to say whether Srinivasan is right or wrong. If he’s correct, two thoughts strike me with regard to the region I do know: Africa.
First, I wonder whether the financial crises of the 1980s sowed the seeds for the high levels of growth we have seen across Africa the past ten years. Likewise, does today’s crisis present an opportunity for far-reaching growth-boosting policy change? If I were a Minister of Finance or a World Bank country director, I might be inclined to see the current world economy as an opportunity rather than a threat.
Second is the role of history. Development reports are fond of a particular comparison: in 1950 Asian country A had the same income per capita as Sub-Saharan African country B, while today A is ten times richer than B. Sometimes A is China or South Korea, while B might be Mali or Sudan, but the message (and the implied puzzle) is the same.
The usual answers vary: differential policies, political stability, geography, or human capital are just a few.
I think the comparison is flawed, however. It ignores the vast differences in development that do not show up in GDP per capita figures between Asia and tropical Africa.
As Srinivasan notes, in 1820 China and India were the world’s economic (and in some cases technological) powerhouses. They had centuries of bureaucracy, business, government, and sophisticated technological innovation behind them. Their vast numbers of rural poor, however, drove down the per capita income numbers and obscured the very fundamental differences at the centers.
This point is similar to the “it’s all institutions” point of view. I’m being slightly more specific, I think. Bureaucracies, business sectors, and universities are not just inventions, they are social and cultural phenomena that can take generations to develop and mature. This is a point too seldom explored.
By this reading, Sub-Saharan Africa may not lack institutions, it may simply have lacked (so far) the time needed for institutions to diffuse and develop. We are already seeing these institutions diffuse from the rest of the world to Africa, at possibly unprecedented rates of speed (as institutions and culture go).
Africa’s slow growth since 1950 is not so much a puzzle from this point of view, but rather an historic achievement. Has any civilzation ever moved from a (relatively) stateless region to one with advanced bureaucracies, universities, and commercial sectors in just three or four generations?
So, unexpectedly, I leave China much more optimistic about Africa than I arrived. What Europe and China and India took millennia to achieve Africa has done in a century.
Nevertheless, future success still boils down to the right leaders, the right opportunities, and the right reforms. We can expect to see a lot of variation across the continent in our lifetimes. But with the foundations now built, a number of African tigers (or should I say cheetahs) look more likely this century than the last.
18 Responses
In regards to my above comment, I was refering to African countries not Indian or Chinese
Deeda,
I am not sure what you are smoking, but it’s more of western media comapring the two countries than the individual media of these countries.
Deeda,
your quote about reasons for India’s economic growth are laughable and shows just how you like you to assume things you know nothing about. Maybe you are one of those chinese with over-inflated ego. Anyways, china wasn’t a stalwart just over 8-9 years ago, whatever development has happened has happened very recently. It took China from 1980 to about 1999 to get to the 1 trillion mark, India reached there in 2006, 14 years after economic liberation. So, the comment of P.Srinivasan of India’s percieved backwardness is only due to late start and not inefficiency. I don’t know if you are aware but china’s has equal number of poor areas as India does inspite of recieving about 10 times more FDI than India and becoming big in manufacturing, something that India hasn’t even ventured in yet. From personal experience, I only see west comparing china with India and India with China and moaning about how one country has gone ahead of another while conveniently disregarding time lag and development approach of the two country. I am pretty sure that most Indians don’t care about china just like most chinese don’t care about India. Improving their own life is more important for both of them. So, the comparision between china and india is more of a western past time and not Indian. As far as backwardness goes, India lags in infrastructure development, and it unfortunately cannot build cities with millions of empty apartment. The portrayal of western media of India and China also plays a role, Chinse officials don’t allow western media inside their country let alone let them report on negative aspects, unlike india where these pesty reports blatantly propagandise the negatives of India. It’s a fact that we should take into account when boasting about china. Another aspect to consider would be Indian businesses, their footprint on the market is larger and more effective than chinese ones. I would say India’s economic development has been much faster than China’s. The only problem is India shows it’s negatives as well as promotes it’s positives unlike china that only portrays it;s positives while blocking out negatives. That’s the truth, India is indeed shining and your stupid comment won’t affect it.
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As Srinivasan notes, in 1820 China and India were the world’s economic (and in some cases technological) powerhouses. They had centuries of bureaucracy, business, government, and sophisticated technological innovation behind them.
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my comments
well africa in many regions had this too.mali was was the richest empire in the world in the 1300 and 1400’s.
nubia was one of the leading technological powerhouses in the world up the modern times.they were ahead.they hada advanced iron and steel industry and other industry.so africa was ahead,it’s just that europe caught up technological in the late 1800’s.and africa has awhole had more problems catching up like china .south africa has caught up and pass china and india.twice.
it make it clear when you are talking about africa,it’s modern africa trying to catch up has a whole with modern western europe.of course south africa had done technological is one of the most advanced in the world.sudan and nigeria is catching up faster and a a few others.and let’s not compare africa to only two countries in asia.africa is not a country.some areas in africa are more advanced than other areas. just like some civiliaztion in africa were more advanced than others in the world and in africa.
it’s best to compare african countries by themselves than with china or india.
so i jjust want to make that clear.
there were many states in africa that had advanced bureaucracies tech know how etc. asia was not ahead of africa.in fact africa was ahead of asia. advanced empires and kingdoms like nubia,mali,songhay etc.
anyway africa had to start all over again after in got free.
china and india had to start over agian but they never had the same relationship with europe like africa had in the early 1900’s
We hear a lot from Indians comparing India with China, and rarely do we hear a Chinese does this. One explanation is that India is still a remote and backward country in the mind of an ordinary Chinese. The rationale is that you do not associate yourself with someone who is behind you. Another reason is China does not benefit from this comparison at all. China arrived at her height today through reform, experiments, hardworking and governmance. It has transformed from a low productivity country to a economy on scale. The growth is balanced among industry, agriculture, service, and R&D. The wealth has trikled down to large rural population. That’s is why today we see it as largest auto market.
It is different in India’s case. India has achieved relative success in call centers, low level tech service business outsourced by the U.S. Other than that, we don’t see any fundamental imrpovement. There is plenty “India Shining” hype out there, but no fundamental changes among it’s vast poor and illiterated population. By comparing with China tirelessly, India created an impression that it is playing at the same level as China does.
We are likely to see both countries grow, but then we don’t confuse apples with organges.
Deeda i agree with the fact that the Chinese do not like being compared with India for various reasons, i have come across who dispel studies with praise even china like the ones from PWC 2050 et al just because these studies also sing phrases about India and what is in future.
However I do not agree what u say in a hype, what constitutes development, if anything to go by, literacy rate, Per capita Income, number of patents, telecom connectivity, health and year on year the numbers show a great deal progress for India. government is investing large amounts on infrastructure more than anything seen before in India.
Al though i really dont believe the thoery that India started 10 years later so its 10 yeas behind but study china numbers for 1999 and projections for India 2020, and the story goes on. moreover I think more often than not the comparison starts with the competition between firms fighting for contracts and resources abroad which does not check what happening in home countries but how well a company can do business and in this case India and china are and will be for a long time countries to compare.
Not sure I agree that Africa has developed “advanced bureaucracies, universities and commercial sectors”. Most of the government bureaucracies were built on the foundation of colonial administrations and their current size and scope are generally a hindrance to growth. Advanced universities??? Where? The ones I am familiar with in Nigeria, Kenya, Uganda, Ivory Coast have been in sharp decline over the last 20 -30 years. While the commercial sector has grown, it can hardly (with the exception of South Africa) be described as advanced. Stock markets and futures trading are in their infancy. Banking, insurance and financial services are 20 years behind the US and Europe. As noted above, like it or not, commercial markets cannot achieve the scale of India or China because countries are too small and leaders have done too little to promote real economic integration.
I think the point on economics of scale is very relevant in Africa. If I were a World Bank regional director I would start thinking of how to orient African economies towards regional engines of growth. I am thinking Ghana-Ivory Coast-Senegal-Nigeria in West Africa, the DRC in central Africa, Ethiopia-Kenya in Eastern Africa and South Africa-Zimbabwe-Angola in Southern Africa. Only with big populations that can sustain domestic industrial production will Africa see its economies diversify enough to meet the demand for jobs.
Of course creating adequate regional economic cooperation will be difficult at the beginning (heaven knows what it would take to make the DRC a regional engine of growth). But I think proper telecom connections might do the trick, even in the face of poor governance (the ruling class in Africa might be corrupt but its members sure wouldn’t pass a business opportunity).
The connection between crises and growth is fascinating and needs to be explored more in the literature. In some cases it’s clear: Turkey’s existential crisis around 1912-1922 was necessary to Mustafa Kemal’s almost unbelievably fast and thorough revamp of the country’s institutions, and that revamp allowed Turkey’s survival and subsequent growth.
What seems clear, though is that the causal link between crises and growth can depend crucially on who emerges in charge. Big crises in Zimbabwe, DR Congo, and Liberia in the past were not followed by growth because the winner of the power shakeup engaged in economic (and other) misrule. Turkey might have gone down a completely different path if Mustafa Kemal were never born. Perhaps the clearest example is Korea: A catastrophic clearing-out of the old institutions took place peninsula-wide, and what arose to replace them determined the subsequent path.
So maybe we should say that breaking open the old deadlocks presents the possibility of rapid growth, contingent on several crucial and complementary necessary conditions.
And What about Australia, Brazil, Argentina, Chile, Mexico, US and Canadá?
Thay are new countries and didn’t have so many centuries to develop these social andinsitutional networs you mentioned.
Manoel
Well, these are considered classic examples of “settler econmomies” that imported institutions from Europe via colonial settlers. There’s a number of superb papers py Engerman & Sokoloff, as well as by Acemoglu, Johnson and Robinson, that show that variation in European settlement across the colonies is stringly associated with institutional development and economic growth.
In a good portion of those countries Europeans moved there, killed the locals, and set up new countries. These countries had very similar cultures (informal institutions) to the European ones and set up some similar formal institutions. When Europeans moved to other places to live, they made little Europes out of their destinations. They can’t really be compared to countries where Europeans had a (relatively) light impact and where they set up institutions based around fast and cheap extraction.
This might be an obvious point, but in this context can we really compare China and India to all of sub-Saharan Africa? I would think that both China and India’s institutions benefit from returns to scale that, at present, most countries in Africa cannot realise (along the lines of what Paul Collier has been suggesting).
You really should not be listening to Paul Collier on Africa. All his focus on “international security forces” ignores the fact that Africa has strong militaries like Nigeria’s. No doubt his data is almost impeccable, but it lacks content
“context” is what I meant to say