Accounting for Growth: Comparing China and India
Barry Bosworth, Susan M. Collins
NBER Working Paper No. 12943
Issued in February 2007
A new paper on how China and India have differed in their past growth and the different problems they face for future growth. From conclusion:
"...China’s concentration of growth in industry while India’s growth has been strongest in various service-producing industries; but China’s growth is remarkably broad across agriculture, industry and services....estimates of the contributions to overall labor productivity growth from growth within sectors versus from the gains due to reallocation of labor and capital among sectors. In China, we document the strong contribution to growth that is provided by both increases in capital per worker and TFP....China is experiencing a significant deceleration of growth in TFP due to wasteful and excessive expansions of capital investment. The comparison of China and India highlights the weak performance of India’s manufacturing sector as much as the strong growth of services. ....both economies should be able to sustain their growth. They have plentiful supplies of underutilized labor, though India faces greater challenges of raising educational attainment. Both have high rates of private saving, although again China stands out. India currently devotes much of its saving to finance the large fiscal deficit."
Abstract - NBER "We compare the recent economic performances of China and India using a simple growth accounting framework that produces estimates of the contribution of labor, capital, education, and total factor productivity for the three sectors of agriculture, industry, and services as well as for the aggregate economy. Our analysis incorporates recent data revisions in both countries and includes extensive discussion of the underlying data series. The growth accounts show a roughly equal division in each country between the contributions of capital accumulation and TFP to growth in output per worker over the period 1978-2004, and an acceleration of growth when the period is divided at 1993. However, the magnitude of output growth in China is roughly double that of India at the aggregate level, and also higher in each of the three sectors in both sub-periods. In China the post-1993 acceleration was concentrated mostly in industry, which contributed nearly 60 percent of China’s aggregate productivity growth. In contrast, 45 percent of the growth in India in the second sub-period came in services. Reallocation of workers from agriculture to industry and services has contributed 1.2 percentage points to productivity growth in each country." [Source]
Abstract - Brookings "The emergence of China and India as major forces in the global economy is one of the most significant economic developments of the past quarter century. Their continued growth is likely to dominate the course of the world economy for the next several decades. Up to now, only a small fraction of the world's population has enjoyed the fruits of economic well-being, with high-income industrial countries accounting for less than a fifth of the world's population. However, China and India together comprise over a third of the world's population; and since 1980, they have achieved remarkable rates of economic growth and poverty reduction."
"The purpose of this paper is to examine sources of economic growth in the two countries and to compare and contrast their experiences over the past 25 years. In many respects, China and India seem similar. Both are geographically large countries with enormous populations that remain very poor. In 1980, roughly the beginning of our analysis, both had extremely low per capita incomes, although we note that there is some controversy in the literature about their relative income levels. Since then, GDP per capita has more than doubled in India and has increased a remarkable 7-fold in China. However, the details of their economic growth are in fact quite different. While initially both were largely autarkic countries, isolated from the global economy, China acted more quickly and aggressively to lower trade barriers, and attract foreign direct investment inflows. In addition, as discussed more fully in later sections, China has experienced explosive growth in its industrial sector, whereas India's growth has been fueled by the expansion of service-producing industries."
"In this paper, we investigate the patterns of economic growth for China and India by constructing a set of growth accounts for each that uncover the supply side sources of output change. In addition to aggregate output, the accounts are constructed for the three major economic sectors: primary (agriculture, forestry and fisheries), industry (manufacturing, mining, construction, and utilities), and services. This level of detail enables us to assess the magnitude of efficiency gains associated with the movement of workers out of agriculture, where they are frequently under-employed, into higher productivity jobs in industry and services." [Source]
