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How important is foreign capital to income growth in China and India?

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The picture often painted is that foreign capital inflows in China and India are prominently linked to rapid growth at the national level, and contribute to widening income disparities at the provincial/state level. In this paper we revisit Krugman�s (1993) contention that foreign capital can hardly be considered an important income growth driver, when in most developing countries it only accounts for a fractional share of gross capital formation. In the case of contemporary China and India, the data suggests that Krugman�s critique holds largely true, even in the coastal regions that are considered magnets for foreign investment. Thus, domestic factors, rather than the driving forces of globalization, appear to be the more important determinants of income growth in both countries.

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Paper provided by School of Economics, University of Queensland, Australia in its series EAERG Discussion Paper Series with number 0405.

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Handle: RePEc:qld:uqeaer:04

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  1. Colin G. Brown & Scott A. Waldron & John W. Longworth, 2005. "Rural development in China: Industry policy, regionalism, integration and scale," International Journal of Social Economics, Emerald Group Publishing, vol. 32(1/2), pages 17-33, January.
  2. Chandana Chakraborty & Parantap Basu, 2002. "Foreign direct investment and growth in India: a cointegration approach," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1061-1073.
  3. Xiaobo Zhang & Kevin Zhang, 2003. "How Does Globalisation Affect Regional Inequality within A Developing Country? Evidence from China," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 47-67.
  4. Xing, Yuqing & Zhang, Kevin Honglin, 2004. "FDI and Regional Income Disparity in Host Countries: Evidence from China," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 57(3), pages 363-379.
  5. Pami Dua & Aneesa I. Rashid, 1999. "Foreign Direct Investment and Economic Activity in India," Working papers 62, Centre for Development Economics, Delhi School of Economics.
  6. Nirvikar Singh & T.N. Srinivasan, 2004. "Indian Federalism, Economic Reform and Globalization," Public Economics 0412007, EconWPA.
  7. Levine, Ross, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 688-702, November.
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Cited by:
  1. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.

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