ECON 455 Lecture 20 India and China

ECON 455 Lecture 20 India and China - Econ455 Economic...

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1 1 Econ455: Economic Development in China Lecture 20: March 28 India and China Sandra Poncet Lorch Hall, room 207 Email: [email protected] Office Hours: Mondays 16:30-18:30 & Wednesdays 10:30-12 2 Introduction China and India: grabbing the world’s attention: The dragon versus the Tiger Global growth engines: Nominal dollar GDP for China and India has grown at an average of 8.3% and 7.0%, respectively, over the past five years, compared with 4% for the World Ex China and India.. China has been far ahead But India is picking up speed Predicting who will win is impossible … especially as transition makes the use of past pattern unreliable The lecture intends to cover the similarities and differences the opportunities and challenges prospects for rivalry or cooperation?
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2 3 China-India geography 4 Lecture Outline Introduction I A tale of two models A-Similarities B-Differences II India’s recent acceleration: strength and weakness A-Weaknesses B-Strengths III Rivalry or cooperation A-Recent recognition B-Rivalry as political power C-Potential for economic and political cooperation? Conclusion
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3 5 I-A tale of two models A-Similarities Population size: over 1 billion Both countries have adopted major internal and external structural reforms to accelerate growth. Traditionally poor agrarian economies Socialism/communism heritage: Planning. India is governed by a coalition of parties with diverse economic perspectives: the gvt depends on the support of allies (prominently the Communist parties) Autarky and mistrust of foreign influence: India gradually opens since 1991 Reaping the reward of reforms: 6% average growth in India (8% in China) 6 I-A tale of two models A-Similarities Embracing external sector-led growth But limited capital account convertibility (capital controls)
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4 7 Simple projections : China first and India fourth by 2050 I-A tale of two models A-Similarities 8 A-Similarities Attractiveness for investors
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5 9 A-Similarities Accumulation of foreign reserves 10 B-Differences But China has left India far behind
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6 11 B-Differences China is much more opened to trade (membership in the WTO in 2001 against 1995 for India) 12 B-Differences India is running a trade deficit that has to be covered by capital account surplus
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7 13 B-Differences China attracts much more capital flows and mainly under the form of FDI (long term and productive use) ($55 against $5). India is more opened to portfolio investment (more developed stock exchange and capital markets): less volatile? 14
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8 15 FDI is low in India and is mainly in capital intensive service- sector exports.
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