Transcript Implications of the new development trajectories and the

Some implications of new, highgrowth development trajectories
Contrasting India and China
Similarities between India and China

High and sustained rates of growth of
aggregate and per capita national income



For longer in China than India, but growth
accelerating in India recently
Occurs in the context of integration through
trade, investment and financial liberalization
Increased presence in the global economy
China and India’s contribution to global
growth
2000
2001
2002
2003
2004
Global 6.9
4.8
4.6
5.7
growth
(% p.a.)
Percentage share of annual growth rates
7.4
China
15.8
23
25.2
23.4
19.9
India
6
7.3
8.2
9
7
India and China Relative to the World (%)
1978
1985
1995
2000
Exports of goods and services (constant 2000 US$)
China
1.43
1.92
2.56
3.51
India
0.54
0.52
0.88
0.80
GDP (constant 2000 US$)
China
0.95
1.52
2.94
3.77
India
0.91
0.99
1.29
1.45
GDP, PPP (constant 2000 international $)
China
2.92
4.58
8.75
10.99
India
3.53
3.77
4.82
5.31
Source: World Development Indicators Online
2004
2005
6.65
1.09
4.88
1.68
5.20
1.77
13.61
5.89
14.32
6.14
Importance of exports
Exports of Goods and Services to GDP
40
37.46
33.95
35
30
29.56
25.13
24.57
23.3322.6
25
23.07
22.5323.3
21.75
20.95
20.3520.4
20.05
20
China
India
20.54
18.42
15
15.2915.48
13.813.48
10
11 10.5910.8511.2211.66
10.0310.03
8.61 8.99
5
1991
1993
1995
1997
1999
2001
2003
2005
Difference in the Structure of Exports
Chart 2: Ratio of Merchandise Trade to GDP
34.1
35
30.72
30
26.71
25
22.4
21.64
20.83
20.79
20.44
20.31
20.09
19.19
19.09
20
18.0217.99
17.64
China
India
15
10
56.64
1991
8.04 7.87 7.76 8.62 8.59 8.55 8.08 7.92
1993
1995
1997
1999
11.8
10.86
9.21 9.07 9.7 9.49
2001
2003
2005
Related to differences in structure of
growth


Of the cumulative increase in GDP between 1991
and 2005, while 53 per cent was accounted for by
industry in the case of China (with 40 per cent from
services), as much as 62 per cent was accounted
for by services in the Indian case (with 27 per cent
from manufacturing).
Manufacturing growth strong in China accounting for
37 per cent of the increment in GDP in this period,
whereas the comparable figure for India was just 16
per cent.
Implications of patterns of growth



Fall-out of growth led by manufacturing in China in
terms of demand for non-manufacturing sectors, viz.
agriculture, mining and services likely to be
significant, if not strong
This is likely to impact on demand and growth within
and outside China
This would not be as true of India’s services-led
growth, which is likely to impact only on the demand
for manufactures and other services
Trends in the sources of imports (%age
distribution)
1980
China
INDUSTRIAL COUNTRIES
DEVELOPING COUNTRIES
OTHERS
India
INDUSTRIAL COUNTRIES
DEVELOPING COUNTRIES
OTHERS
1985
1990
1995
1999
2000
2005
2006
73.7
22.8
3.5
70.4
28.1
1.5
50.1
48.3
1.6
55.4
42.7
1.9
52.3
45.1
2.6
47.0
49.8
3.2
38.1
53.5
8.5
37.4
53.2
9.4
46.5
52.8
0.7
52.7
46.6
0.6
56.9
42.5
0.6
48.5
45.5
6.0
44.7
55.3
0.0
40.5
36.1
23.4
33.3
36.4
30.3
34.8
39.3
26.0
The evidence


A sharp shift away from imports from
developed to developing countries starting in
the mid-1980s in the case of China
This is true in the case of India too, though
the shift is less pronounce partly because of
a lower dependence on developed countries
in 1980.
Imports of goods and services as per cent of GDP
35
30
25
20
15
10
5
0
1980
1985
1990
China
1995
2000
India
2003
World
2004
2005
Goods imports (BoP, current US$ bn)
393.6
400
350
300
250
214.7
200
150
110.1
100
50
42.4
38.2
15.1
53.9
38
23.4
68.2
0
1985
1990
1995
China
2000
India
2003
China’s Developing Country Imports
(as % of world imports)
DEVELOPING COUNTRIES
OIL EXPORTING CTYS
NON-OIL DEVELOP.CTYS
WESTERN HEMISPHERE
MIDDLE EAST
DEV. CTYS: ASIA
AFRICA
DEV. CTYS: EUROPE
1980
22.8
1.4
21.4
3.7
1.8
8.7
1.5
7.2
1985
28.1
1.4
26.6
4.3
0.5
16.7
0.7
5.9
1990
48.3
2.5
45.8
2.4
0.9
38.3
0.6
6.1
1995
42.7
2.9
39.8
2.1
1.7
33.7
1.0
4.2
2000
49.8
6.0
43.7
2.4
4.5
36.7
2.4
3.8
2005
53.5
5.8
47.6
4.0
4.9
38.0
3.0
3.6
2006
53.2
6.5
46.7
4.2
5.4
36.8
3.4
3.4


In the second half of the 1980s, the sharp
shift in the sources of Chinese imports was in
favour of developing Asia
Subsequently, the increases have been
distributed to other part of the developing
world
India’s Developing Country Imports
(as % of world imports)
1980
DEVELOPING COUNTRIES
OIL EXPORTING CTYS
NON-OIL DEVELOP.CTYS
WESTERN HEMISPHERE
MIDDLE EAST
DEV. CTYS: ASIA
AFRICA
DEV. CTYS: EUROPE
1985
52.8
27.5
25.3
2.5
29.1
9.3
1.4
10.5
1990
46.6
18.6
28.1
2.6
20.5
9.1
2.4
12.1
1995
42.5
16.9
25.6
2.2
18.3
11.2
2.8
8.0
1999
45.5
20.6
24.9
1.5
21.4
13.9
4.6
4.2
2000
55.3
24.3
31.0
1.8
20.9
18.8
11.5
2.2
2005
36.1
10.4
25.6
1.5
9.4
17.2
6.1
1.9
2006
36.4
8.1
28.3
1.7
7.3
21.5
3.2
2.6
39.3
7.5
31.8
2.1
6.8
26.0
1.6
2.7




In India’s case the pattern is more complicated,
partly because of the incompleteness of the data.
Oil played an extremely important role in shaping
the sources of imports.
Asia’s role as a source of imports has been
increasing rapidly, servicing India’s manufactured
import requirements.
Areas other than Asia, especially Africa, seem to be
dropping out, but there is a data problem here.
Cumulative post-1990 growth of imports
from Africa in dollar terms
8000
7000
6000
5000
4000
3000
2000
1000
0
1990
1992
1994
1996
1998
China
2000
2002
India
2004
2006
Cumulative post-1990s growth of imports from
Asia in dollar terms
1800
1600
1400
1200
1000
800
600
400
200
0
-200
1990
1992
1994
1996
1998
China
2000
India
2002
2004
2006
Cumulative post-1990s Growth of
Imports from Latin America
3000
2500
2000
1500
1000
500
0
-500
1990
1992
1994
1996
1998
China
2000
2002
India
2004
2006
Cumulative post-1990s Growth in Imports from Industrial Countries in
dollar terms
1000
800
600
400
200
0
-200
1990
1992
1994
1996
1998
China
2000
2002
India
2004
2006
Possible explanations


Post liberalization patterns of growth may be
reducing the elasticity of demand for staples
with respect to GDP growth.
Growth based on manufacturing in China
needs more access to raw materials,
whereas growth based on services in India
may generate more demand for oil and final
manufactures.
An illustration from India



Accelerating non-agricultural growth in India
has been accompanied by an agrarian crisis,
involving, inter alia, slow agricultural growth.
In the 1990s, per capita agricultural output
grew at only 0.4 per cent per year and
agricultural income grew at only 0.7 per cent
per year.
Suggests that agriculture is no more a
constraint on non-agricultural growth.
Changes in the neo-liberal 1990s


Change in the pattern of demand and production,
involving a reduction in the direct agricultural-input
dependence of the non agricultural sector.
Sastry et. al. : “In 1968-69 one unit of rise in
industrial output was likely to enhance demand from
agriculture by 0.247 units, which was reduced to
0.087 by 1993-94. On the other hand, in 1968-69,
one unit rise in industry was to cause 0.237 units
demand from the services sector, which increased to
0.457 units in 1993-94.”
Role of services growth


Reduction in agricultural input dependence of
the non-agricultural sector would be greater
once we take account of the growing share of
services in non-agricultural GDP.
While services accounted for 43 and 48 per
cent respectively of the increment of GDP at
current prices in the 1970s and 1980s, the
figure rose to 58 per cent and 62 per cent
respectively during the 1990s and the years
2000-01 to 2004-05.
Employment vs output growth
Chart 6: Annual rates of employment growth for usual
status workers
3.39
3.5
3.22
3
2.77
2.5
2.27
2.03
1.97
2
1.5
1.36
1
0.66
0.5
0
Rural
1983 to 1987-88
1987-88 to 1993-94
Urban
1993-94 to 1999-2000
1999-2000 to 2004-05
Source: National Sample Survey Organisation, Various Rounds
Possible difference with China


Dependence on modern manufacturing may
be limiting the elasticity of employment with
respect to output growth in China as well,
with attendant implications for staples.
But demand for primary raw materials
including agricultural raw material and metals
would be increasing.
China’s consumption of Industrial
Materials and Oil
1993–2002
World
China's
Consumption
Contribution
Growth
(Annual % change)Per cent
Metal
Aluminum
Copper
Lead
Nickel
Steel
Tin
Zinc
Oil
Source: IMF (2006)
3.8
3.5
3
4.4
3.4
1.3
3.4
1.5
38
43
42
12
38
34
42
21
2002–05
World
China's
Consumption
Contribution
Growth
(Annual % change)Per cent
7.6
3.8
4.3
3.6
9.2
8.1
3.8
2.2
48
51
110
87
54
86
113
30
Impact on commodity prices



One major impact of the China boom has been a degree of
buoyancy in commodity prices. While other factors have played a
role, but for China’s presence, commodity prices may not have
reflected the buoyancy they have.
Over the last five years there are signs of a reversal (however
temporary) of the long term trend in global commodity prices. By
the beginning of this decade commodity prices had fallen relative
to consumer prices (as measured by the US Consumer Price
Index) for over five decades. But from around 2002, commodity
prices have been on the rise.
While exporters of oil have been important beneficiaries, the
index of non-fuel commodity prices has also been rising.
Obvious importance of non-fuel
commodities


Non-fuel commodities have a higher share in world
trade (about 14 percent during 2000–04) than fuel
commodities (7 percent).
Many developing countries are highly dependent on
non-fuel commodities as a source of export
earnings—36 countries have a ratio of non-fuel
commodity exports to GDP of over 10 percent, and
in 92 countries the ratio is over 5 percent. Indeed, in
many low-income countries (including in Africa), a
large share of export receipts is generated by just a
few commodities.
Role of manufacturing based growth




These trends are a result of the fact that China’s high rate of
GDP growth has been (unlike in the case of India) driven by
increases in industrial production.
The rate of growth of industrial production in China rose from a
high 10.5 per cent during 1993-2000 to 16.2 per cent during
2002-05.
This industrial dynamism has meant that China today accounts
for 8 per cent of global industrial value added when estimated at
current exchange rates and 25 per cent when valued in PPP
terms.
It has also meant that China is today he largest consumer of
several metals, accounting for about a quarter of the total world
demand for aluminum, copper and steel
Africa a major beneficiary

The major beneficiary of these trends in commodity
demand and prices is Africa, in which China’s
presence has expanded substantially. African
exports to China started accelerating around 2000,
and have since risen at an annual growth rate of
more than 50 per cent. By 2004, African exports to
China touched $11.4 billion, reflecting a more-thanthreefold increase since 2000. By 2004 China
accounted for 6 per cent of total African exports to
the world.
Africa’s trade with India and China
Africa’s exports to India and China
Implications for Terms of Trade


One consequence of the rise in the volume and unit value of
commodity exports from Africa, are signs of the reversal (for the
present) of the long-term deterioration of net barter terms of trade
faced by developing countries dependent on primary products for
their export revenues that go to finance imports of manufactured
products.
With competition in manufactures export trade (influenced by
China) moderating price increases in manufactured goods, and
China’s demand driving up commodity prices, developing
countries as a group and Africa in particular that are still
substantially dependent on the exports of primary products, have
experienced an improvement in their terms of trade.
ToT and Purchasing Power of Exports
(2000=100)
ToT and Purchasing Power of Exports
(2000=100)
ToT and Purchasing Power of Exports
(2000=100)
ToT and Purchasing Power of Exports
(2000=100)
Net Impact on Africa




The net result of all this is that the China boom has helped a
continent like Africa.
Real GDP growth in Africa rose from an average annual rate of
4.2 per cent during 2001-2004 from 3.3 per cent during 19972000. Sub-Saharan Africa gained even more with its real GDP
growth rate touching 5.4 per cent in 2004, which was an eightyear high.
The African Economic Outlook 2005 (AfDB/OECD 2005), among
others, attributes this improvement substantially to the rise in
commodity prices.
Further China’s interest in the region’s natural resources has
resulted in huge flows of aid and foreign investment from China
to Africa, bolstering the regions infrastructure and putting much
needed investment into the natural resources sector.
Is this a challenge to the old Imperialism



It is inasmuch as it gives other developing
countries a space to negotiate the process of
development
But does it imply a loosening of developed
country dependence for India and China
That view often buttressed by the idea that
India and China are exploiting the benefits of
the new knowledge economy.
What is the new economy?



Improvement in the quality of human and other
forms of ‘intangible” capital rendered possible by the
knowledge revolution a crucial determinant of
productivity differentials across sectors and nations.
Transmission of these intangibles from the pure
knowledge domain to commodities must be
mediated by labour of different kinds which must
acquire the necessary intangibles
Requires investment geared to the production and
dissemination of knowledge (i.e., in training,
education, R&D, information and coordination).
Role of Knowledge 1
Share in World industry value added, by selected country
1980
1985
1990
1995
2000
2003
All manufacturing industries
Total value added ................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
United States......................
22.86% 23.58% 22.46% 24.23% 25.60% 23.84%
European Union-15.............
36.05% 31.83% 31.41% 28.94% 26.86% 26.33%
Japan.................................
15.67% 17.85% 19.34% 17.93% 16.07% 14.72%
China .................................
1.96%
2.50%
2.50%
4.48%
6.71%
9.42%
India...................................
0.62%
0.74%
0.89%
1.08%
1.20%
1.35%
High technology industries
Total value added ...............
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
United States..................
24.56% 25.93% 24.67% 25.47% 39.58% 42.49%
European Union-15 ........
34.22% 30.27% 27.95% 26.66% 20.10% 18.45%
Japan.............................
14.37% 22.41% 24.89% 23.10% 15.86% 12.07%
China .............................
0.94%
1.26%
1.25%
2.62%
5.30%
9.32%
India...............................
0.14%
0.13%
0.24%
0.38%
0.35%
0.36%
Role of Knowledge 2
High Technology Exports, 2004
(Current US $ billion)
China
161.6
France
64.9
Germany
131.8
Hong Kong
80.1
India
2.8
Italy
23.5
Japan
124
UK
64.3
USA
216
0
50
100
150
200
250
Trends in services production
Share in World service industry data, by selected country
Total production ......................
100.00% 100.00% 100.00% 100.00%
United States.......................
35.54%
34.76%
34.35%
33.32%
European Union-15..............
29.92%
29.45%
29.16%
29.34%
Japan...................................
14.58%
15.21%
15.81%
15.52%
China ..................................
0.52%
0.75%
0.92%
1.17%
India....................................
0.52%
0.60%
0.71%
0.87%
100.00%
34.89%
28.86%
14.15%
1.51%
1.00%
100.00%
35.16%
28.54%
13.66%
1.61%
1.14%
India an exporter of knowledge-intensive
services

IT and ITeS Exports from India:


IT services exports estimated at around $23 billion
in 2005-06 by RBI
During the period 1990-91 to 2004-05, exports
have been growing at 47.5 per cent per annum or
doubling every 21 months.
IT-based Growth in India

In absolute and relative terms the size of the IT
sector in India is now impressive.


NASSCOM estimates the size of the industry in 2005-06 at
$36.3 billion, of which $29.5 billion consisted of revenues
from software and services. $23. 4 billion of these were
export revenues: comprising of $17.1 billion of software
and services export revenues and $6.3 billion of revenues
from exports of IT-enabled services and business process
outsourcing (BPO).
The ratio of gross IT sector output to GDP rose from 0.38%
in 1991-92 to 1.88% in 1999-00 and 4.5 % 2004-05
Dissociation of knowledge and
production


Knowledge in production separate from
knowledge for production.
Knowledge in services separate from
knowledge for services.
K4P: Domestic R&D
Research and Development Expenditure, 2003
(Percent of GDP)
2.99
3
2.72
2.49
2.5
2.18
2
1.86
1.5
1.07
1
1
0.85
0.5
0
China
France Germany
India
Italy
Japan
UK
Source: US National Science Board, Science and Engineering Indicators 2006
US
Scientific and Technical Journal Articles, 2000
196221
200000
180000
160000
140000
120000
100000
80000
55413
60000
43440
49485
30960
40000
21038
18142
10047
20000
0
China
France Germany
India
Italy
Japan
UK
Source: US National Science Board, Science and Engineering Indicators 2006
USA
Royalty and Licence Fee Receipts, 2004
(US $ million)
50000
48137
45000
40000
35000
30000
25000
20000
15000
12271
10245
10000
5000
4066
4453
107
25
525
India
Italy
0
China
France Germany
Japan
Source: World Bank, World Developmet Indicators
UK
USA
Retaining K4P: Absorbing talent
Foreign graduate student enrollment in U.S. universities, 2004
279,076
All locations...........................................................................................................
63,013
India...................................................................................................................
50,796
China .................................................................................................................
24,757
South Korea........................................................................................................
15,015
Taiwan ...............................................................................................................
12,129
Canada...............................................................................................................
8,681
Japan.................................................................................................................
6,912
Turkey ................................................................................................................
5,708
Thailand .............................................................................................................
4,225
Mexico ...............................................................................................................
3,915
Germany ............................................................................................................
83,925
Other locations ...................................................................................................
Retaining K4P : Retaining talent
Plans of foreign recipients of U.S. S&E doctorates to stay in United States
Doctorate recepients 2000-03
Plans to stay Definite plans to stay
All non-U.S. citizens...............................................
37,608
73.6
51.1
East/South Asia ................................................. 21,215
79.9
54.8
China ...........................................................
10,089
92.5
63.6
India..............................................................
3,238
89.2
66.6
Retaining K4P : Global R&D


Transnational corporations (TNCs) account for at
least 70% of global business R&D. In 2002, the top
700 R&D spenders reported R&D expenditures of
more than $300 billion (WIR 2005).
Ford, Pfizer, DaimlerChrysler, Siemens, Toyota and
General Motors each spent more than $5 billion on
R&D in 2003. In comparison, among the developing
economies, total R&D spending exceeded $5 billion
only in Brazil, China, the Republic of Korea and
Taiwan Province of China.
Retaining K4P : Internationalizing R&D

A rising share of these companies' R&D
expenditures are undertaken in developing
countries. Between 1994 and 2002, the
developing-country share of all overseas
R&D by US TNCs increased from 7.5% to
13%. Today, more than half of the world's top
R&D spenders conduct R&D activities in
China, India or Singapore.
Role for foreign firms in India and China


China’s trade surplus with the US rose to
$114.2 billion in 2005, up from $80.2 billion in
2004. Exports to the US rose by over 30 per
cent to $162.9 billion and imports totaled
$48.7 billion. But dominant share of exports
from foreign invested firms.
More than 60 per cent of India’s IT services
exports are to the US. But more than 50 per
cent of ITeS exports from captive units.
Increase in US Presence in Asia


In Asia and Pacific, value added of foreign
affiliates in 1999–2004 grew at an average
annual rate of 9 percent, and the region’s
share increased 1.2 percentage points, to
19.0 percent.
The largest increases in shares were in
China, India, and Japan.
The China Boom


In China, value added of affiliates in manufacturing
accounted for more than two-thirds of the value
added of all Chinese affiliates in 2004, and during
1999–2004, value added of Chinese affiliates in
manufacturing grew at an average annual rate of 23
percent.
In 2004, more than two-thirds of the sales by
Chinese affiliates in manufacturing were to
customers in China, and only 7.4 percent of these
sales were to U.S. customers, down from 16.3
percent in 1999.
India and Japan


In India, the growth in value added was widespread
by industry, but it was most notable in manufacturing
and wholesale trade, in which affiliates sell almost
exclusively to local customers, and in computer
systems design and related services (part of
professional, scientific, and technical services), in
which affiliates sell mainly to customers in the
United States.
In Japan, most of the growth in value added was in
manufacturing, mainly reflecting acquisition of firms
or establishment of new foreign affiliates to serve
the local market.
Impact on trade 1
Table 4.4: US intra-firm imports in ICT goods and services, 2004
USD millions and percentage
shares
Total
Related Share
imports party
%
trade
All goods
1460160
697561
47.8
Computer equipment
73733
51731
70.2
Communication equipment
38733
28106
72.5
Audio & video equipment
37054
24282
65.5
Electronic components
65351
43690
66.9
Magnetic & optical media
4096
2160
52.7
ICT products
218967
149969
68.5
ICT share of total
15
21.5 ..
All services
258069
54693
21.2
Computer & information services
5804
3800
65.5
ICT share of total
2.2
6.9 ..
Source: OECD, Information Technology Outlook 2006
The distributed value chain
China’s exports of
EDP and office
equipment
China’s imports of
integrated circuits
and electronic
components
2000
2004
5.02
20.73
6.80
22.40
Semiconductor market shares
Europe
13%
ROW
1%
United States
49%
Japan
37%
Exporting knowledge

The United States continues to be a net exporter of
manufacturing technological know-how sold as
intellectual property:


On average, royalties and fees received from foreign
firms were three times greater than those paid out to
foreigners by U.S. firms for access to their technology.
In 2003, U.S. receipts from the licensing of technological
know-how to foreigners totaled $4.9 billion, 24.4% higher
than in 1999. The most recent data show a trade surplus of
$2.6 billion in 2003, 28% higher than the prior year but
lower than the $3.0 billion surplus recorded in 2000.
Implications




Emergence of a new global division of labour.
Interpreting the Chinese and Indian miracles:
Instruments of battle rather than warriors.
Miracles always exist, but they are never the
same.
There are, however, some signs of change in
China.
K4P: Are things changing?
Gross Domestic Expenditure on R&D (billion current
PPP $), 1981-2006
19
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
06
350
300
250
200
150
100
50
0
Source: OECD, Main Science and Technology Indicators, 2006.
Japan
United States
EU-15
China
Germany
R&D in China


Since 1995, China has not only more than doubled
its R&D spending as a percentage of GDP from 0.6
to 1.3% of GDP, but the number of researchers was
also increased by 77% between 1995 and 2004
China will spend some €102 billion on R&D in 2006,
a little more than Japan's forecast of €97 billion. The
United States is expected to remain the world's top
R&D investor in 2006 with some €248 billion,
whereas the EU-15, is expected to invest around
€173 billion. The EU-25 R&D expenditure in 2004
amounted to 1.9% of GDP, some €195 billion.