If so, what, exactly?
Written by Daniel Park China and India are booming. Superficially it is easy to be impressed. We note that annual growth rates in Gross Domestic Product GDP have been sustained over the past few years at per cent, sometimes even higher.
Analyses of China and India point to the major investment in education that is turning out many thousands of top-class engineers and scientists annually.
The recent rises in energy and commodity prices are partly explained by the rapid growth in demand from China and India. This is, I believe, at best an incomplete perspective and at worst a dangerous one.
The two purposes of this White Paper are i to compare and contrast the high growth rates in the two countries and ii to assess the likely outcomes and impact. The Nature Of Economic Growth The first aspect of this is the significant difference in the nature and structure of growth in the two countries.
In mature economies we can point to the balance between the two. In the case of India, the investment share of GDP is slightly above average for the industrialised world. The more relevant question in the case of China is as follows.
Given the high investment percentage within GDP growth, why is China not growing more quickly? The key question in the case of India is different. Given the major social and demographic changes that are being experienced, will India be able to manage the expansion of consumerism and retain a balanced structure of GDP growth without hampering investment in fixed capital formation and avoiding a growth in national, corporate and individual debt?
This works effectively, though not efficiently, a as long as resources are plentiful and b there is spare capacity throughout the productive system.
The essence of the intensive pattern of economic growth is that resource productivity increases along with growth in output and consumption and a greater rate — in other words there is a better than 1: This characterises developed economies throughout the world.
It is what drives greater efficiency in value-creating processes and, in modern times, greater production specialisation across national boundaries coupled with a high gross percentage of foreign trade import and export relative to GDP, even if the net trade balance does not alter much over time.
China still looks with horror on this rapid disintegration and has acted early enough to ensure that all but the most strategically sensitive industries are now to most intents and purposes private operations.
India has succeeded in abandoning its former addiction to Soviet-style planning early enough to avoid the worst damage. But there remains a massive deadweight of large-scale indigenous industry that is over-resourced, uncompetitive and sustained by the pressure of vested interests.
There is, however, evidence that China is moving into a more intensive pattern of economic development, accelerated by a gradual move towards world prices for commodity inputs and other intermediate inputs together with market-based pricing allied to a market-rational internal cost of capital.
This is to ensure that high rates of economic growth can continue, driven increasingly by consumption relative to investment and based on more efficient resource utilisation. What matters above all to a Western company is the quality of decisions made in respect of dealing with China and India as partners in increasingly global supply chains.
The Business Dimension Though India has made well-publicised progress in technical and business education in the past twenty to thirty years, China has not held back.
Starting more recently, the level and pace of investment have been breathtaking. However there are significant differences in the approach. Whereas India has developed through its internal resources, China has undertaken rapid transfer of best practice and has adapted this quickly to the Chinese culture.
Additionally the spread of best practice has affected a very wide range of sectors of the economy. Hence we have seen the emergence of a very effective and internationally competitive software and I.
It is not. Much of Indian industry is still old-fashioned and, worse, it is stifled by a structure of bureaucratic management coupled with high levels of vertical integration that is over a century out-of-date.
Thank goodness labour costs remain low, because structures and management approaches are intrinsically uncompetitive in whole sectors of the economy. Low labour cost is to a significant extent a compensator for systemic inefficiency, and the problem will come when labour rates begin to rise, as will naturally happen as the country becomes more developed.
It is in this latter type of product that the deadening impact of bureaucratic systems is found. Any advantage of low cost for highly and non-so-highly skilled direct and indirect labour can quickly be outweighed by the transaction costs and delays incurred in operating through unresponsive, high-cost administrative systems.
Theirs has been a much more holistic approach — an approach that fits so well with the philosophical and social traditions of the country. What has happened here is that not only is there a major initiative in upgrading technical skills but also a set of programmes in transferring managerial systems and their associated competencies.We attempt to fill this gap by utilizing panel data on countries over the period to examine the extent to which the growth difference between China and other countries can be explained by the augmented Solow model.
Economic Growth and Economic Indicators - Economic growth is measured by the change in real GDP. Real GDP is the total value of all of the goods and services produced in . The Solow-Swan Model of Economic Growth!
The Solow-Swan Model: The Solow-Swan model of economic growth postulates a continuous production function linking output to the inputs of capital and labour which leads to the steady state equilibrium of the economy.
Following Ertur and Kock () and Elhorst et al. (), a spatially-extended neoclassical Solow growth model is developed to explore the spatial characteristics of regional economic growth at. The Solow-Swan model shows that the growth process is stable.
No matter where the economy starts, forces exist that will push the economy over time to a steady state. Growth with Saving: An important conclusion of the Solow-Swan model is that the growth rate does not depend upon the saving rate.
Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.
It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.. Growth is usually calculated in real terms - i.e., inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced.