Bhalla Uce05

7/30/2019 Bhalla Uce05

1/36

1

CESifo Economic Studies

Conference on Understanding

the Chinese Economy

10 11 June 2005

CESifo Conference Centre, Munich

India China: Diverging to Converge

Surjit S. Bhalla


2/36

2

India - China: Diverging to Converge

CESifo Economic Studies Conference on Understanding the Chinese Economy: ifo

Institute, Munich, GermanyJune 10-11, 2005

Surjit S. Bhalla*

*O[x]us Research & Investments, New Delhi

Email: [email protected]


3/36

3




Surjit S. Bhalla*




4/36

4




Surjit S. Bhalla*




5/36

5

Objectives

Compare China and India performance on avariety of indicators past, present, and future


6/36

6

Growth PerformanceIndia, China

China

India

-5

0

5

10

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

GDP Growth


7/36

7

Growth and Undervaluation

20

40

60

80

100

Under

valuation

-5

0

5

1

0

1950 1960 1970 1980 1990 2000year...

GDP - India GDP - China

UV - India UV - China

GDP Growth and Undervaluation


8/36

8

TFPGIndia, China

China

India

-4.0

-2.0

0.0

2

.0

4.0

6.0

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Productivity Growth


9/36

9

Investment/GDPIndia, China

China

India

1

5

20

25

3

0

35

40

%

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Investment-GDP Ratio


10/36

10

Industrial ProductionIndia, China

China

India

-1

0

-5

0

5

10

15

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Industrial Production


11/36

11

Interest RatesIndia, China

China

India

-5

0

5

10

%

1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1972-02

Real Lending Rate


12/36

12

InflationIndia, China

China

India

-10

0

10

20

30

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

1962-2002

Inflation, CPI (1993)


13/36

13

SavingIndia, China

China

India

15

20

25

30

35

40

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Savings Rate


14/36

14

Governance IndicatorsIndia, China

Governance Indicator Values, India and China

China India Change

1997 2002 1997 2002 China India

Voice -1.37 -1.43 0.26 0.36 -0.1 0.1

Rule of Law -0.32 -0.34 0.10 0.07 0.0 0.0

Govt. Efficiency 0.14 0.18 -0.14 -0.07 0.0 0.1

Political Stability 0.26 0.14 -0.44 -0.67 -0.1 -0.2

Regulation -0.09 -0.35 -0.11 -0.36 -0.3 -0.3

Corruption -0.11 -0.42 -0.23 -0.26 -0.3 0.0


15/36

15


Governance Indicator Rank, India and China

China India Change

1997 2002 1997 2002 China India

Voice 83 85 18 14 -2.0 4.0

Rule of Law

44

36

27

23

8.0

4.0

Govt. Efficiency 21 20 34 28 1.0 6.0

Political Stability 25 30 61 60 -5.0 1.0

Regulation 52 56 53 57 - 4.0 - 4.0

Corruption 28 45 36 32 -17.0 4.0


16/36

16


0

20

40

60

80

CO GE PS RL RQ VA

Rank in 1997

China India

0

20

40

60

80

Rank

CO GE PS RL RQ VA

Rank in 2002

China India

-20

-10

0

10

CO GE PS RL RQ VA

Change in Rank, 1997-2002

China India

China and India

Comparative Performances, 1997-2002


17/36

17

Corporate Tax RatesIndia, China

China

India

0

5

10

15

20

%

1990 1992 1994 1996 1998 2000 2002 2004Year

Source: Datastream

1991-2004

Corporate Tax Rates


18/36

18

Foreign Direct InvestmentIndia, China

China

India

0

1

2

3

4

5

%

1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1967-02

Share of FDI in GDP


19/36

19

Foreign Direct InvestmentIndia, China

China

India

0

5

10

15

%

1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1967-02

Share of FDI in Investment


20/36

20

Undervaluation of Currencies

Undervaluation is defined as the ratio of per capitaGDP in current US dollars to per capita GDP in current

international PPP dollars.


21/36

21


Yuan

Re

2

0

40

60

80

100

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Undervaluation w.r.t USD


22/36

22


Yuan

Re

-10

-5

0

5

10

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Undervaluation w.r.t USD


23/36

23


50

100

1

50

1950 1960 1970 1980 1990 2000Year

Germany Japan

United Kingdom

40

60

80

1001

20

1950 1960 1970 1980 1990 2000Year

Korea Malaysia

Singapore

40

60

80

100

1950 1960 1970 1980 1990 2000Year

Chile Brazil

Mexico

253035404550

1950 1960 1970 1980 1990 2000Year

Poland Hungary

Russia

Note: Undervaluation value of 100 means fair valuation.Undervaluation of 20 means that the productivity level is 5 times the cost.

Undervaluation w.r.t US$


24/36

24

Growth ModelIndia and China

The growth model uses the following variables for the

period 1980 2003; data arranged in five-year periods.

Log Initial Per Capita Income, Log Initial Years of

Education, Latitude (proxy for Geography), Log Change inUndervaluation, and Share of Investment in GDP are the

independent variables.


25/36

25

Living StandardsIndia, China

Poverty Levels

Infant Mortality

Fertility Rate

Dependency Ratio

Education Attainment, All

Education Attainment, Females


26/36

26

Poverty LevelsIndia, China

China

India

0

20

40

60

80

100

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: XX

5 Yr Avg, 1962-02

Share of Population Living Below $1/Day


27/36

27


China

India

20

40

60

80

100

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: XX

5 Yr Avg, 1962-02

Share of Population Living Below $2/Day


28/36

28


10.0

30.0

50.0

1980 1985 1990 1995 2000 2005Year

Household Survey

20.0

40.0

60.0

HCR

1980 1985 1990 1995 2000Year

Household Survey, World Bank

0.0

20.0

40.0

60.0

1980 1985 1990 1995 2000 2005Year

India China

Survey, 1987 S/NA Ratio

Headcount ratio, different estimates of growth


29/36

29


Poverty levels in India and China in the year 2003 are

the same.


30/36

30

Infant Mortality LevelsIndia, China

China

India

50

100

150

200

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1952-02

Infant Mortality Levels


31/36

31

Infant Mortality DeclineIndia, China

China

India

-6

-5

-4

-3

-2

-1

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1952-02

Infant Mortality Decline


32/36

32

Fertility RatesIndia, China

China

India

2

3

4

5

6

7

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Fertility Rate Decline


33/36

33

Dependency RatioIndia, China

China

India

55

60

65

70

1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Age Dependency Ratio


34/36

34

Education AttainmentIndia, China

China

India

1

2

3

4

5

6

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Education Attainment


35/36

35

Education Attainment FemaleIndia, China

China

India

1

2

3

4

5

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002Year

Source: WDI 2004

5 Yr Avg, 1962-02

Education Attainment, Female


36/36

36

Conclusion

Undervaluation of exchange rate is a very importanttheoretical and empirical contributor to the Chinese

growth performance.

Each 10 percent appreciation of the yuan would lower

Chinas growth rate by 1.4 percent per annum.India growth rate is expected to be higher than China

by 2010.

Poverty levels ($ a day poverty line) are the same in

India and China (circa 2003).

Documents

Bhalla Uce05