Wednesday, August 12, 2009

Why China is growing faster than India?

Why are China and India growing faster than other countries? Also, why is China growing faster than India? T.N. Srinivasan argues (via Chris Blattman) that it is because of:

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.

Srinivasan asserts that in the future India has higher potential for higher growth than China does because (contingent on right reforms in India):

India is younger, more rural, and engaged in lower productivity activities. A shift into higher productivity activities will only accelerate their growth.India’s economy is more market oriented, has a more efficient financial sector, and more experience in domestic innovation and entrepreneurship. China 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.

Interesting perspective!