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The Cost Competitiveness of Manufacturing in China and India - An Industry and Regional Perspective

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Author Info

  • Bart Van Ark

    (Indian Council for Research on International Economic Relations)

  • Abdul Azeez Erumban
  • Vivian Chen
  • Utsav Kumar

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 suggest 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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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22268.

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Date of creation: Jan 2008
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Handle: RePEc:eab:macroe:22268

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Keywords: cost competitiveness; manufacturing; India; China; Labor Productivity;

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References

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  1. Erumban, Abdul A., 2007. "Productivity and Unit Labor Cost in Indian Manufacturing: A Comparative Perspective," GGDC Research Memorandum 200796, Groningen Growth and Development Centre, University of Groningen.
  2. Adam Szirmai & Ruoen Ren & Manyin Bai, 2005. "Chinese Manufacturing Performance in Comparative Perspective, 1980-2002," Working Papers 920, Economic Growth Center, Yale University.
  3. Lee, Boon L. & Rao, D.S. Prasada & Shepherd, William, 2007. "Comparisons of real output and productivity of Chinese and Indian manufacturing, 1980-2002," Journal of Development Economics, Elsevier, vol. 84(1), pages 378-416, September.
  4. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June.
  5. Szirmai, Adam & Ruoen, Ren, 2000. "Comparative performance in Chinese manufacturing, 1980-1992," China Economic Review, Elsevier, vol. 11(1), pages 16-53.
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Cited by:
  1. Joshi, Deepika & Nepal, Bimal & Rathore, Ajay Pal Singh & Sharma, Dipti, 2013. "On supply chain competitiveness of Indian automotive component manufacturing industry," International Journal of Production Economics, Elsevier, vol. 143(1), pages 151-161.

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