Week 8 - Emerging Economies in India and China Flashcards
(24 cards)
What was the Economic strategy in China before 1980 and what paper speaks about it?
Naughton (2007)
China under Mao from 1949
1. Big Push Industrialisation 80% investment in heavy sector
2. Command Economy all was centrally plan
3. Underinvestment in agriculture (Output 51% to 28%)
4. The great leap forward (1958-1961)
People’s communes, backyard furnaces
- led to great famine
30 million people died
Outcomes:
Postii
What was the turning point after Mao in China?
What was done?
Economic reforms were introduced by Xiaoping.
Movement away from planned economy:
Rural change:
Household responsibility system that gave people incentive (output increased by 1/3)
Dual track system - they could sell surplus at higher price.
- Set up TVEs, Town and Village enterprises allowed labor to work in non-rural sector
- Employed 100 million people by 1990.
- Set up Special Economic Zones between 1979-1980 that allowed for trade.
What were the outcomes of the first phase of reform Chinese reforms in 1978?
- Thanks to the TVES agriculture output grew by 1/3
- TVES employed 100 million people by 1990
- By the early 2000s, non-state firms accounted for over 60% of industrial output.
- Between 1978 and 1992, China’s exports grew tenfold, from $10 billion to $100 billion”
What was the second wave of reform in China?
What is a negative behind this second wave of reform?
- Dual track system was abolished and moved to free market
- SOE reform - small state businesses were privatised and larger ones were given budget constraints
- joined WTO organisation in 2001
- This transitioned China to a free market economy that set the groundwork for growth in early 2000s
Negative:
As the govt revenue depended on the profits on public
enterprises- Declined from 34% of GDP in 1978 to 11% in
1995.
What does Xu (2011) say
Focuses on how China grew despite the weak institutions
As the RDA was likely a career system they tried policies like TVE and SOE to boost growth
Results:
A 1 SD increase in growth increased chance of promotion by 33%
Even in the absence of strong rule of law this was able to produce growth
What did Brandt, Ma and Rawski (2014) say
How did China grow so rapidally?
Historically China had weak institutions and an elite that blocked reforms.
In 1978 when the reforms started to come about this unblocked the issues
Also the provincial governors had an incentive to deliver growth.
Differently to other papers they explain that it was a long term reversal of institutional underdevelopment
What did Autor, Dorn and Hanson (2016) say?
Areas exposed to Chinese exports lost 2.4 million jobs
Interpretation: They argue that China export booms led to job losses in developed world
which papers speak about China alone?
Naughton (2007) - general story
Xu (2011) - institutions
Brandt et al (2014) - historical growth
Autor et al (2016) - US trade China
What was India like after Independence?
What was a major policy it was under?
- They rejected the colonial policies and wanted to be self sufficient.
- First phase from 1950-1960 was focused on investing in infrastructure
- Second phase from 1960 was focused on Industrial development
- Therefore, there was a strong state led industrialisation similar to China which invested a lot in capital goods
- Unbalanced amount of investment caused a push for growth
- LICENSE RAJ
What are the two papers on India?
Kotawal et al (2011)
Rodrik and Subramanian (2005)
What were the outcomes of the post-independence policies?
Exports fell as they were a closed economy
Protections from license Raj increased inefficiency
GDP growth was around 1.7% yearly from 1950-1980
In India what was the change of the growth rate? and Source?
GUPTA (2019)
1950-1980 1.4
1980-1990 3.0
1990-2000 4.1
When was the turning point in India and what caused it?
- In 1991 there was a removal of the license raj
- There was trade liberalisation and the rupee was devaluated
- Pro-business reforms in 1980 and pro-market reforms in 1990
- Rodrik and Subanimam (2005) say that while the formal liberalisation was in 1991 there was still an initial one in 1980
For Kotawal et al (2011)
Category | Summary |
| ——————- | ——————————————————————————————————————————————————- |
| Research Focus | Did India’s post-1991 liberalization lead to higher growth and poverty reduction? |
| Research Design | Sectoral and macroeconomic analysis (GDP, trade, employment), with focus on structural change. |
| Results | Growth rose post-1991, led by services, not manufacturing; reforms improved productivity, but job creation lagged, especially in formal sector. |
| Interpretation | Liberalization worked for growth, but gains were uneven; reforms did not generate inclusive development or large-scale industrial employment. |
For Rodrik and Subranamanian (2005)
Category | Summary |
| ——————- | ——————————————————————————————————————————————– |
| Research Focus | Why did India’s growth accelerate around 1980, before the 1991 liberalization? |
| Research Design | Growth accounting + break-point analysis of productivity and per capita GDP trends (1960–2000). |
| Results | Growth shift began \~1980, driven by higher TFP, not capital; not caused by 1991 reforms. |
| Interpretation | Growth was triggered by a “pro-business” shift in political attitude, not liberalization — 1991 helped sustain, not start, the boom. |
What is the main nuance of the growth experienced by India in 1980?
Delong (2001). The small steps taken in the direction of
reduction in regulation in the 1980s generated a large
response in GDP growth. However the bigger changes of the
1990s had a relatively limited response.
Bosworth and Collins (2008) also back this up *Bosworth, B. and S. Collins, S. 2008. “Accounting for Growth: Comparing China and India.”
Journal of Economic Perspectives 22(1): 45-66.
What is the required reading for China and India?
Bosworth and Collins (2008)
How did China and India’s growth compare?
In 1978-2004 India grew at 5.4%
While China grew at 9.3%
Indian growth accelerated after 1993.
- They both had a employment growth of 2% per year but this was mainly driven by population growth
- Effect of capital deepening was higher in China than India
- 50% of growth came from input growth and 50% came from TFP gains
- China and India relied more on becoming more efficient in the inputs while east asia was more reliant on piling on the inputs.
- Both countries benefitted from Green revolution (Bosworth and Collins, 2008). However, China benefitted more from more reform
- 50% of china economy was industrialised, while 30% in India.
- Faster TFP growth in China
- Indian growth was driven by the service sector Services- Indian growth led by the service sector.
India has overtaken China in labour productivity
and TFP growth in services.
What did Bosworth and Collins (2008) do?
- They used growth accounting to compare the growth between India and China from 1978 to 2004
How did China and India compete in Exports.
- Consistently throughout China had higher exports. However,
India had a higher share of service exports.
How could you compare education between China and India
India struggled with education due to shortcomings with education system and high illiteracy in rural areas.
China also struggled with literacy during the cultural revolution
This impacted older generations but they recovered fast
Literacy lower in India Literacy lower in India - 99% literacy in the age group 15- 24 in China compared to 75% in India.
A 1 year increase in schooling is associated by 7% increase in productivity
In India higher returns to secondary school education with respect to primary education
Explain Bosworth and Collins (2008)
Uses growth accounting to compare the growth of India and China
explaining with TFP
Labour and Education etc
- Uses production function framework as well as World Bank and Unesco data
Results:
📈 1. GDP and Output per Worker
China: GDP growth = 9.3%, Output per worker = 7.3%
India: GDP growth = 5.4%, Output per worker = 3.3%
⚙️ 2. Contributions to Growth (India, 1978–2004):
Capital per worker: +1.3%
Education: +0.4%
TFP (efficiency gains): +1.6%
Growth was split evenly between input growth and productivity improvements, unlike East Asia, which relied more on inputs.
🔍 3. Sector Findings:
Agriculture: China outperformed India due to institutional reforms + higher TFP
Industry: China’s industrial output per worker grew 3× faster than India’s (7.0% vs. 2.5%)
Services: India’s TFP-led services boom stood out post-1993 (5.4% growth per worker)
👷♂️ 4. Labor and Education
India had lower average years of schooling and slower gains than China
Returns to education were low for primary, higher for secondary/higher education in India
Youth literacy (15–24): China = 99%, India = 76
🔹 India’s growth has improved, especially after 1993, but it is still less broad-based than China’s.
🔹 China grew through massive investment, export-led industrialization, and productivity across all sectors.
🔹 India’s growth was led by services and a small pool of educated workers, while the rest of the economy (especially industry and agriculture) lagged.
🔹 Both countries show that TFP — not just more inputs — is now driving growth, marking a shift from East Asia’s input-driven model.
What was the overall trend in China and India over the entire period?
- Before 1980 China and India were both under extremely regulated and mostly state led ecnomies
- These both followed state led industrialisation
- However, after 1980 the end of the license raj and economic reforms allowed for growth
What is the Zilibotti (2017)
