Transcript Why China is Kicking Butt?

The Impact
of
Offshore Outsourcing
on
Low Income Countries
Satya Gabriel and Eva Paus
February 27, 2006
CS/Econ/IR/Politics 125
Potential Benefits of FDI
for Low Income Countries
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Increased investment
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Increased employment and higher
wages
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Expansion of host country’s
technological capabilities through
technology transfer and spillovers.
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Does Offshore Outsourcing
Provide New Potential Benefits ?
(1) Growing fragmentation of global commodity chains:
=> smaller low income economies might get a ‘piece of
the pie.’
(2) Growing globalization of production, incl. by small and
medium-sized countries:
=> more low income economies might attract FDI.
(3) Increasing offshoring of more skilled production
processes and services, incl. R&D:
=> greater potential for expansion of technological
capabilities
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The Uneven Distribution of Offshoring
Benefits among and in Low Income
Economies
FDI Inflows to Developing & Transition Economies
(millions of U.S. dollars)
300,000
250,000
200,000
150,000
100,000
50,000
0
1990
2000
Developing & transition economies
South America
Asia
Africa
Central America &Caribbean
Central & Eastern Europe
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Why China is Kicking Butt
Or How a Strong State and a
Modernist Marxist Vision
Combined to Produce
Extraordinary Growth
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Relevant Facts About China
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Approximately 1,300 million population.
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GDP per capita (purchasing power parity): $6,200
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GDP growth rate in past year was about 9%.
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Last month China’s GDP exceeded that of Britain and France, moving the People’s
Republic into fourth place in the GDP race.
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Pearl River Delta region has a larger economy than the Phillipines, Malaysia, and
Singapore.
As of December, China moved ahead of the United States to become the world’s top
exporter of information technology products.
China now produces more than 40% of all personal computers manufactured on the
planet.
China’s per capita income in purchasing power parity is about $6,200.
Chinese growth is being generated mostly by government controlled firms, particularly
rural-based and community government controlled township-village enterprises.
In 2001, almost 600 million Chinese citizens were making do on less than $2 per day,
below the official poverty line, and 150 million were living on less than $1 per day.
China has the fastest growing NGO sector in the world.
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$1,650
GDP per capita
GDP
billions of US$ (in 2002 prices)
Transition from State Feudalism to State
Capitalism
$1,268
$183
$177
1979
1979
2004
2004
Time
Time
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CS/Econ/IR/Politics 125
Relevant Facts About India
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1,080 million population.
GDP per capita (PPP): $3,400
Economic growth has been nearly 7% per annum for the past
decade.
India is expected to have a larger economy than Italy by 2015.
Services are the leading sector in generating economic
growth.
Bangalore has become a world center for computer
programming, other I.T. services, and English-language
customer service centers.
300 million Indians live on less than $1 per day (twice the
number of Chinese who live at this sub-poverty level).
India has 40% of the world’s poor.
India has 20% of the world’s out of school children.
India has the world’s second largest HIV positive population
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(~6 million people).
China and India: Some Structural
Aspects in Common
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Strong States: Chinese and Indian governments directly controlled large parts
of their respective economies and infrastructures.
State sector employment provided significant work and administrative
experience.
Nuclear Powers with well disciplined and nationalistic military bureaucracies:
no history of military coups
Long History of Import Substitution Industrialization
Large State-owned/controlled Enterprise Sectors
Most Populous Nations on the Planet
Strong History of Anti-Imperialism
Various Interpretations of Marxism Has Been Influential on Intellectual
Development of Leadership: Indeed, the Indian leadership’s choice of name
for the early reform process, New Economic Policy (NEP), was borrowed from
early reforms in the USSR under Lenin that were later terminated by Stalin.
Public Education Has Been a Key Public Policy: Both countries have a large
number of highly trained specialists, scientists, engineers, etc.
China and India are major trading partners. India imports more from China
than from the United States, but exports more to the United States. China is
also a major exporter to the United States.
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CS/Econ/IR/Politics 125
Low Income economies need the right
location-specific assets to attract TNCs
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Political and macro-economic stability
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Peaceful labor relations
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Infrastructure, esp. IT-related
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Low labor costs for unskilled labor for low-level
manufacturing FDI
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Low labor costs for skilled labor for higher-level
manufacturing and services
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Attracting FDI is not enough for
development…..
 Technological spillovers do not happen
automatically !!
 Need for pro-active government policies
to promote indigenous capabilities.
 Washington Consensus Policies often
reduced the very state capacity that is
needed to foster indigenous capabilities.
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FDI-Development Links are
Becoming more difficult
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More intense competition for FDI (at all level of
technology)
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Higher barriers for integration into TNCs’ value chains
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Less time to realize technological spillovers
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Reduced space for development policies
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Tax competition among countries + growing global
capital mobility reduce governments’ ability to increase
revenues at a time when it is particularly needed.
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Conclusion: Growing Inequality
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Within countries, premium on highskilled labor
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Between capital and labor
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Among economies which can take
advantage of offshore outsourcing
and those that can not.
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