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A Tale of Two Countries: Openness and Growth in China and India

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  • Chee Kian Leong

Abstract

The policy by China and India to open their markets to international trade has been touted as the reason for their phenomenal growth. This paper investigates the impact of opening up the China and Indian economy on economic growth in these countries using new panel data sets for both the national economies and the regional economies of China. The policy change to a more liberalized economy is explicitly identified using instrumental variables. The results provide support that export growth does have a positive and statistically significant effect on economic growth in these countries. However, the growth rates of these countries are export and FDI inelastic, in the sense that a one percentage point increase in growth rate of export or FDI will have a less than one percentage point increase in economic growth rate of these countries. In the case of the Chinese regions, the presence of export processing zones may exert positive effect on the regional growth rate but the increase in regional growth is even more export inelastic than at the national level. The results dispel the popular view that adopting a policy of more openness in the economy has a “multiplier” effect on economic growth. Of the two phases of liberalization in both countries, the second stage is statistically significant. One possible reason is that the scale of liberalization is greater in the second phase. Additionally, increasing the number of SEZs has very negligible effect on economic growth. Taken together, these results suggest that what contributes to greater growth is a greater scale of liberalization, rather than increasing the number of SEZs.

Suggested Citation

  • Chee Kian Leong, 2007. "A Tale of Two Countries: Openness and Growth in China and India," DEGIT Conference Papers c012_042, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c012_042
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    File URL: http://degit.sam.sdu.dk/papers/degit_12/C012_042.pdf
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    Cited by:

    1. Rimmer, Peter J. & Dick, Howard, 2010. "Appropriate Economic Space for Transnational Infrastructural Projects: Gateways, Multimodal Corridors, and Special Economic Zones," ADBI Working Papers 237, Asian Development Bank Institute.
    2. Peter J. Rimmer & Howard Dick, 2012. "Economic space for transnational infrastructure: gateways, multimodal corridors and special economic zones," Chapters,in: Infrastructure for Asian Connectivity, chapter 7, pages 217-253 Edward Elgar Publishing.
    3. Altuð Kazar & Görkemli Kazar, 2016. "Globalization, Financial Development and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 578-587.
    4. repec:wsi:ceprxx:v:03:y:2014:i:02:n:s1793969014500125 is not listed on IDEAS

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