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

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Abstract

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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  • James Laurenceson & Abby Kamalankanthan, "undated". "How important is foreign capital to income growth in China and India?," EAERG Discussion Paper Series 0405, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uqeaer:04
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    File URL: http://www.uq.edu.au/economics/eaerg/dp/0405.pdf
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    1. 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.
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    3. Sadhana Srivastava & Rahul Sen, 2004. "Competing for Global FDI: Opportunities and Challenges for the Indian Economy," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 5(2), pages 233-260, September.
    4. 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.
    5. Nirvikar Singh & T.N. Srinivasan, 2004. "Indian Federalism, Economic Reform and Globalization," Public Economics 0412007, EconWPA.
    6. Xing, Yuqing & Zhang, Kevin Honglin, 2004. "FDI and Regional Income Disparity in Host Countries: Evidence from China," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 57(3), pages 363-379.
    7. 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.
    8. 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. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, vol. 45(1), pages 217-238, August.
    2. Chakraborty, Chandana & Nunnenkamp, Peter, 2006. "Economic reforms, foreign direct investment and its economic effects in India," Kiel Working Papers 1272, Kiel Institute for the World Economy (IfW).
    3. 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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