Diagnosing development bottlenecks : China and India
AbstractAlthough it had a a lower income level than India in 1980, China's 2006 per capita gross domestic product stands more than twice that of India's. This paper investigates the role of the business environment in explaining China's productivity advantage using recent firm-level survey data. The analysis finds that China has better infrastructure, more skilled workers, and more labor-hiring flexibility than India, but a worse access to finance and higher regulatory burden. Infrastructure appears to be a key constraint for India: it lags significantly behind China, yet it has important indirect effects for the effectiveness of labor flexibility. Labor flexibility is also likely a major constraint for India, as evident in the predominance of small firms, the importance of firm size in accounting for India's disadvantage in productivity, and the complementarity of proxies of labor flexibility with infrastructure and access to finance. Interestingly, regulatory uncertainty has adverse effects in India but not in China. The empirical analysis suggests that it is important to consider country-specific growth bottlenecks and the indirect effects of policy reforms.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5641.
Date of creation: 01 Apr 2011
Date of revision:
Environmental Economics&Policies; Labor Policies; Labor Markets; Banks&Banking Reform; E-Business;
Other versions of this item:
- Wei Li & Taye Mengistae & Lixin Colin Xu, 2011. "Diagnosing Development Bottlenecks: China and India," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 722-752, December.
- NEP-ALL-2011-05-07 (All new papers)
- NEP-CNA-2011-05-07 (China)
- NEP-DEV-2011-05-07 (Development)
- NEP-MIC-2011-05-07 (Microeconomics)
- NEP-TRA-2011-05-07 (Transition Economics)
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