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the Cost Competitiveness of the Manufacturing Sector in China and India: An Industry and Regional Perspective

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Author Info

  • Bart van Ark

    (The Conference Board/ Growth and Development Center of the University of Groningen)

  • Abdul Azeez Erumban

    (The Conference Board/ Growth and Development Center of the University of Groningen)

  • Vivian Chen

    (The Conference Board/ Growth and Development Center of the University of Groningen)

  • Utsav Kumar

    (The Conference Board/ Growth and Development Center of the University of Groningen)

Abstract

This paper focuses on comparisons of productivity, (unit) labor cost and industry-level competitiveness for the manufacturing sector of China and India. We first provide a comparison between India and China using a broad international perspective. We find that China has increased its labor productivity to a level above that of India, but due to a somewhat higher compensation level, China is still somewhat at a disadvantage in terms of unit labor cost in manufacturing relative to India. In the second half of the paper, we make an analysis of industry level differences in productivity, labor compensation and unit labor costs at state and province level in the two countries from the mid 1990s to the early 2000s. We find rapid declines in unit labor cost across industries and provinces in China, but increases in many instances in India. This suggests that productivity and compensation growth have become much more aligned across regions in China whereas this is not (yet) the case in India. We relate these results to differences in the implementation of market reforms between the two countries and removal of barriers to resource mobility eradicating inefficient manufacturing activity.

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File URL: http://www.conference-board.org/economics/workingpapers.cfm?pdf=E-0042-09-WP
File Function: First version, 2009
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Bibliographic Info

Paper provided by The Conference Board, Economics Program in its series Economics Program Working Papers with number 09-02.

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Length: 48
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:cnf:wpaper:0902

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Cited by:
  1. Alan Heston, 2008. "What Can Be Learned About the Economies of China and India from Purchasing Power Comparisons?," Macroeconomics Working Papers 22166, East Asian Bureau of Economic Research.
  2. Janet Ceglowski & Stephen Golub, 2011. "Does China Still Have a Labor Cost Advantage?," CESifo Working Paper Series 3579, CESifo Group Munich.
  3. C. Veeramani & Prachi Gupta, 2014. "Extensive and intensive margins of India's exports: Comparison with China," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-011, Indira Gandhi Institute of Development Research, Mumbai, India.

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