RWER issue 57: Mazhar Siraj
China and India: A comparative analysis of their integration into the global economy
Global integration ofChinaandIndiahas had quite different effects on the structural pattern of their economic growth. Manufacturing became the engine of economic growth in the former whereas the latter thrived due to the rapid growth of services sector. The implications of their present patterns of growth seem to be very favourable for long-term development. However, employment effects of their integration into the global economy are quite similar, and are evident in fast growth of labour, migration of skilled labour force to developed countries, decline of employment in formal sector and slow growth of regular wage employment. In this context, sustainability of the fast economic growth ofChinaandIndiadepends largely on the extent to which they are able to generate a process for steady expansion of regular wage employment and productivity of low skilled labour force.
Over the past two to three decades,ChinaandIndiahave attained spectacular prominence due to their rapid and sustained economic progress. The Chinese economy has been thriving at almost double-digit growth rates since 1980. Although the Indian economy did not grow as fast asChina’s, it has nevertheless been among the ten fastest growing economies in the world over each of the two decades, 1980-1990 and 1990-2000 (Izurieta and Singh, 2008, p.2). The unprecedented economic success is popularly attributed, largely, to the integration of these countries into the global economy (see Chow, 2007, p.9; Nolan, 2004, p.2; Mahtaney, 2007, p.14; Rodrik and Subramanian, 2004, p.1; Ahluwalia, 2002, p.87). Increasingly, the effects of their integration, particularly on economic growth and employment, are becoming an important terrain of academic inquiry. On this topic, a broad-brush review of the recent literature suggests that increased integration into the global economy has had quite different effects on economic growth inChinaandIndia. However, employment effects of the integration are quite similar for both countries. This review points out a paradox which calls for a cautious analysis of empirical facts in a comparative perspective.
In this context, I attempt to assess the above proposition empirically and discuss its implications. I begin by outlining an analytical framework which is generally applied to explain the empirical effects of increased integration into the global economy in light of the predictions of mainstream economic theory. The rationale for this framework derives from the need to identify some important dimensions of economic growth and employment that need to be taken into account in the analysis. Then, differences in effects of global integration on economic growth and similarities in employment outcomes are discussed in two separate sections. Obviously, the employment effects cannot be explained without a reference to the economic growth effects, and therefore, linkages will be drawn between the two sections. The last section summarizes key points of the analysis and draws conclusions.
Before proceeding further, it seems pertinent to delineate three important caveats. First, the statistical data on employment suffer from a number of important limitations (Ghose, 2008, p.47), and therefore do not allow a coherent comparison betweenChinaandIndia. Particularly, the data for same periods on a given set of variables are not readily available, but an effort has been made to include statistics from a variety of sources to plug in the gaps in years as much as possible. Secondly, our discussion begins within a broad analytical context, but then gradually concentrates on two dimensions of economic growth (composition of Gross Domestic Product [GDP] and international trade, mainly exports) and two dimensions of employment (employment by sector and by type). Thirdly, it is presumed that the reader is familiar with key terms and categories related to economic growth and employment (such as formal and informal sector, regular wage employment, manufacturing, merchandise, etc.), as they are used in the literature onChinaandIndia. These categories are not defined here, except in such cases where a non-standard definition is used.
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