Study of Economic Growth & Development

7/30/2019 Study of Economic Growth & Development.

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MAHATMA EDUCATION SOCIETYS

PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCENEW PANVEL

RE-ACCREDITED BY NAAC WITH A GRADE

A PROJECT

ON

STUDY OF PROCESS COSTING

In the subject Economics of Development & Growth

SUBMITED TO

UNIVERSITY OF MUMBAI,

FOR SEMISTER-I OF

MASTER OF COMMERCE

BY

PRIYAL SHAH.

1917

UNDER THE GUIDENCE OF

PROF.AARTI SUKHEJA

YEAR-2012-2013


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I, Miss. Priyal shah. student of M.Com Part-I Roll number 1917 hereby declare that the projectfor the Economic of Development & Growth titled,

Study of Economic Growth & Development

Submitted by Me for Semester-I During The academic year 2012-2013, is based on actual work

carried out by me under the supervision of Prof.Aarti Sukheja.

I further state that this work is original and not submitted anywhere else for any examination.

Signature of student


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This is to certify that the undersigned have assessed and evaluated the project on

Study Of Economic Growth & Development(between India & China)

Submitted by Miss.Priyal Shah.Student of M. Com Part-I.

This project is original to the best of our knowledge and has been accepted forInternal Assessment.

Internal Examiner:- Principal:-

Prof. Aarti Sukheja Dr.Dephne Pillai


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The successful completion of project involved the contribution of time andefforts. This project would never have been completed without the valuable help

extended to us by the subject teacher and project guide Prof. Aarti Sukheja.

Secondly would like to thank our Principal Dr. Daphne Pillai and Vice

Principal Mr. A. N. Kutty for providing us such a prestigious institution.

Last but not least I would like to thank our Parents for making us capable in

doing this project and giving their continuous support and guidance.


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ECONOMIC DEVELOPMENT AND GROWTH

Introduction

In recent years, there has come into existence a new branch of economics Known

as the "Economics of Development". It refers to the problems of the economic

development of underdeveloped or backward countries. In addition to the

illuminating reports of the U.N.O. on the subject, some top ranking economists like

Nurkse, Dobb, Staley, Buchanan, Rostow and Ellis have made some original

contributions to the Economics of Development. The main reason for the growing

popularity of "Economics of Development" as a separate branch of economic

theory is the increasing tendency on the part of the newly independent countries of

Asia and Africa to resort to developmental planning as a means to eliminate their

age-old poverty and raise living standards.

Meaning of Economic Development

Economic development is a process whereby an economy's real national income

as well as per capita income increases over a long period of time. Here, the process

implies the impact of certain forces which operate over a long period and embody

changes in dynamic elements. It contains changes in resource supplies, in the rateof capital formation, in demographic composition, in technology, skills and

efficiency, in institutional and organisational set-up. It also implies respective

changes in the structure of demand for goods, in the level and pattern of income

distribution, in size and composition of population, in consumption habits and

living standards, and in the pattern of social relationships and religious dogmas,

ideas and institutions. In short, economic development is a process consisting of a

long chain of inter-related changes in fundamental factors of supply and in the

structure of demand, leading to a rise in the net national product of a country in thelong run.


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Definitions of Economic Development

The term 'economic development' is generally used in many othersynonymous

terms such as economic growth, economic welfare, secular change,social

justiceand economic progress. As such, it is not easy to give any precise and clear

definition of economic development. But in view of its scientific study and its

popularity, a working definition of the term seems to be quite essential.

Economic development, as it is now generally understood, includes

thedevelopment of agriculture, industry, trade, transport, means of irrigation,

power resources, etc. It, thus, indicates a process of development. The sectoral

improvement is the part of the process of development which refers to the

economic development. Broadly speaking, economic development has beendefined in different ways and as such it is difficult to locate any single definition

which may be regarded entirely satisfactory. Below given definition of UNEC

1. United Nations Expert Committee(UNEC)According to this Committee, "Development concerns not only

man'smaterial needs but also the improvement of the social condition of his

life.Development is, therefore, not only economic growth, but growth plus

changesocial, cultural and institutional as well as economic". This

definitionencompasses economic and non-economic aspects of development.Thisdefinition stresses on the expansion of development variables, and also

improvingthe quality of those variables. For example, capital is a

development variable.Not only the increased quantity of capital is needed

but the improvement in itsproductivity is also required for development.

Similar instances can be given inrespect of other development variables. The

central point of this definition isthat quantitative and qualitative changes in

development variables are consideredessential ingredients of economic

development.


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Characteristics of Developing Countries

1. Low life expectancy is measured against the average age that theindividual is expected to reach

2. Low standard of education- Education and training determine thestandard according to which the population of a country functions andproduces goods and services. One must remember that there are

approximately 80 million children in the poor South who do not go to

school at all, therefore one can understand why poor countries are faced

with unemployment. Without the necessary training people cannot be

prepared for a vocation. This means that such people have no chance of

improving their own conditions.

3. Poor health care-The percentage of a countrys budget that is allocated to health serviceslargely determines the standard of health care in that country. If we

consider the average percentage of 4% in developing countries as opposed

to the 96% in developed countries as shown on the graph on page 12, it is

easy to understand why the hospitals in many poor countries are in such a

shocking condition. There are simply not enough doctors and facilities for

the number of inhabitants of the countries.

4. Unemployment-Over-population and low literacy are some of the main causes of

unemployment. Everybody would like to have a job in order to make

money to earn a living. People who are unemployed cannot be self-

supporting and therefore they are unable to make any contribution to the

economy of the country.

5. Poor nutrition and limited access to safe water-Only 43% of the worlds food production comes from countries that

accommodate 80% of the global population. This, together with the low

life expectancy and inadequate education and training, as well as

insufficient industries, provides a recipe for malnutrition (a condition thatarises when people do not eat enough nourishing food). Approximately

30% of the children in the poor Countries do not have enough food to eat

every day.


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In developing countries many people are dependent on a stream or a river

for their daily supply of fresh water. The water from these sources is not

always safe and clean and if people use the water just as it is, it could lead

to outbreaks of diseases such as cholera, which cause many deaths every

year.

Threats to Developing Countries:

1.Significance of Industrial Sector-Most of the developed countries in the world have given much

importanceof the development of industrial sector. They have large capacities

to utilise resources of production, to maximise national income and to provide

employment for the jobless people. As we are quite aware that these

countriesreceive the major portion of their national income from the non-

agriculture sectors which include industry, trade, transport, and communication

For instance,England generally receives nearly 50% of her national income

from industrialsector, 21% from transport and commerce, 4% from agriculture

and 25% from other sectors. The same case is with the U.S.A., Japan and other

West European countries. But in India and other developing countries

agriculture contributes, say, 35 to 40 percent, to their national income.

2.High Rate of Capital FormationDeveloped countries are generally very rich, as they maintain a high

levelof savings and investment, with the result that they have huge amount of

capitalstocks. The rate of investment constitutes 20 to 25 percent of the total

nationalincome. The rate of capital formation in these countries is also very

high.Besides this, well-developed capital market, high level of savings,

broaderbusiness prospects and capable entrepreneurship have led to a high

growth ofcapital formation in these economies.

3.Use of High Production Techniques and SkillsHigh production techniques and skills have become an essential partofeconomic development process in the developed countries. The new

techniqueshave been used for the exploitation of the physical human resources.

Thesecountries have, therefore, been giving priority to the scientific research,

so asto improve and evolve the new and technique of production.


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Consequently,these countries find themselves able to produce goods and

services of a betterequality comparatively at the lesser cost. It is because of the

use of highproduction techniques and latest skills, that the countries like Japan,

Germanyand Israel could have developed their economies very rapidly, though

theyhave limited natural resources.

4.Low Growth of PopulationThe developed countries, like the U.S.A., the U.K. and other

WesternEuropean countries have low growth of population because they have

lowlevel of birth rate followed by low level of death rate. Good health

conditions,high degree of education and high level of consumption of the

people have ledto maintain low growth of population followed by low level of

birth and deathrates. The life expectancy in these countries is also very high.

The high rate ofcapital formation on the one hand and low growth of

population have resultedin high level of per capita income and prosperity inthese countries. Consequently,the people in these countries enjoy a higher

standard of living and work togetherunitedly for more rapid economic and

industrial development of the nations.Besides this, the entire society, its

structure and values are found to be Economic dedicated to the goal of rapid

economic and industrial development. The positionof individuals in the society

is decided by the ability of the persons and not bytheir birth, caste or creed.

Dignity of labour is maintained. The economic motiveand strong desire to lead

a better social life always inspire people to contributeto the process ofdevelopment. The main objective of rapid economicdevelopment, particularly

in the developed economies is to achieve the level ofstagnant economic

growth, so that they may maintain the existing economicstatus and exercise

control over business cycle.


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Economic Development and Economic Growth

Normally in economic textbooks, growth and development are used

synonymously, and this usage is widely acceptable. However, in particular, thetwo

terms have been distinguished by different economists as follows;

1. To some economists, economic development refers to the process

ofexpansion of backward economies, while economic growth relates to that of

advanced economies.

2. Schumpeter, however, uses the term "economic development" as

aspontaneous and discontinuous change in the stationary state which disturbs the

equilibrium state previously existing. And the term "economic growth" is used to

denote a steady and gradual change in the long run which comes through a generalincrease in the rate of saving and population in a dynamic Economy


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Factors Affecting Economic Growth

The process of economic growth is a highly complex phenomenon and I

influenced by numerous and varied factors such as political, social and

culturalfactors. As such economic analysis can provide only a partial explanation

ofthis process. To repeat here the remark of Prof. Ragnar Nurkse in thisconnection,

"Economic development has much to do with human endowments,social attitudes,

political conditions and historical accidents. Capital is a necessary but not a

sufficient condition of progress". The supply of natural resources, the growth of

scientific and technological knowledge-all these too have a strong bearing on the

process of economic growth. We shall briefly notice some of these factors one by

one.

A. Economic Factors

The following are the important factors which determine the economic

growth of an economy.

1. Natural Resources

The principal factor affecting the development of an economy is the natural

resources. Among the natural resources, we generally include the land area and the

quality of the soil, forest wealth, good river system, minerals and oil resources,good and bracing climate, etc. For economic growth, the existenceof natural

resources in abundance is essential. A country deficient in natural resources may

not be in a position to develop rapidly. In fact natural resourcesare a necessary

condition for economic growth but not a sufficient one. Japanand India are the two

contradictory examples. As pointed out by Lewis, "otherthings being equal man

can make better use of rich resources than they can ofpoor". In less developed

countries, natural resources are unutilized, underutilizedor misutilised. This is one

of the reasons of their backwardness. There is littlereason to expect naturalresource development if people are indifferent to the products or service which

such resources can contribute. This is due to economicbackwardness and lack of

technological factors.

According to Professor Lewis, A country which is considered to be poor in

resources may be considered very rich in resources some later time, not merely


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because unknown resourcesare discovered, but equally because new methods are

discovered for the knownresources". Japan is one such country which is deficient

in natural resources but it is one of the advanced countries of the world because it

has been able todiscover new use for limited resources.

2. Capital Formation

Among several economic factors, capital formation is another important

factor for development of an economy. Capital may be defined as the stock

ofphysical reproducible factors of production. Capital accumulation and

capitalformation, both of these terms carry the same meaning which may be

understoodsimply by the stock of capital. As we know, capital formation is

cumulative and self-feeding and includes three interrelated stages; a) the existence

of realsavings and rise in them; b) the existence of credit and financial institutions

tomobilise savings and to divert them in desired channels; and c) to usethesesavings for investment in capital goods.

3. Technological Progress

The technological changes are most essential in the process of economic

growth. Adam Smith, the father of political economy, pointed out the great

importance of technological progress in economic development. Ricardo visualised

the development of capitalist economies as a race between technological progress

and growth of population. The great importance of technological progress incapitalist development was recognised by Karl Marxtoo.

4. Human Resources

A good quality of population is very important in determining the rate of

economic progress. Instead of a large population a small but high quality of human

race in a country is better for development. Thus, for economic growth,investment

in human capital in the form of educational and medical and such other social

schemes is very much desirable.

5. Population Growth


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Labour supply comes from population growth. But the population growth

should be normal. A galloping rise in population retards economic progress.

Population growth is desirable only in a under-populated country. It is,

however,unwarranted in an overpopulated country like India. In fact, a high

populationgrowth at the rate of 2.5 percent per annum is very much detrimental to

the economic growth of our country.

6. Social Overheads

Another important determinant of economic growth is the provision of social

overheads like schools, colleges, technical institutions, medical colleges,hospitals

and public health facilities. Such facilities make the working populationhealthy,

efficient and responsible. Such people can well take their country economically

forward.

7. Organisation

In the process of growth, organisation is very important. It is organization

that emphasises maximum use of the means of production in production.

Orginisation is complementary to capital and labour and helps production to reach

the maximum level. In the modern economic system, the entrepreneur performs the

duty of an organiser and bears all risks and uncertainties. Hence,entrepreneurship

is an indispensable part in the process of economic growth.For instance, the

Industrial Revolution in England succeeded because of the entrepreneurship.

B. Non-Economic Factors

Both of the economic or noneconomic factors do play an important role in

the process of economic growth. In this regard, socio-economic, cultural,

psychological and political factors are also equally significant as are

economicfactors in economic development of the LDCs Cairncross rightly

observes :

"Development is not just a matter of having plenty of money, nor is it purely

an economic phenomenon. It embraces all aspects of social behaviour; the

establishment of law and order; scrupulousness in business dealings,

includingdealings with the revenue authorities; relationships between the family,


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literacy,familiarity with mechanical gadgets and so on". We discuss here some of

the essential noneconomic factors which determine the economic growth of an

economy.

1. Political Factors

Political stability and strong administration are essential and helpful

inmodern economic growth. It is because of political stability and

strongadministration that the countries like the U.K. the U.S.A., Germany,

Franceand Japan have reached the level of highest economic growth in the world.

But in most of the poor countries there is political instability and weak

administration which have largely influenced their economic development

programmes. It is, therefore, essential for their faster economic development to

have a strong, efficient and incorrupt administration. In conclusion, we cansay thata clean, just and strong administration can put an economy on the wayto rapid

economic development. Lewis rightly comments that "no country hasmade

progress without positive stimulus from intelligent governments".

2. Social and Psychological Factors

Modern economic growth process has been largely influenced by social and

psychological factors. Social factors include social attitudes, social valuesand

social institutions which change with the expansion of education and

transformation of culture from one society to the other. The Industrial

Revolutionof England and other Western European countries in the 18th century

was largely influenced by the spirit of adventure and the expansion of education

which led to new discoveries and inventions and consequently to the rise of thenew

entrepreneurs. Social attitudes, values and institutions changed. Joint familysystem

was replaced by the new single family system which further led to therapid

economic development in these countries.

3. Education

It is now fairly recognised that education is the main vehicle of

development. Greater progress has been achieved in those countries, where

education is wide spread. J.K. Garlbraith in his book "Economic Development"has

rightly stressed the role of education as an engine of economic growth.


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4. Urbanisation

Another noneconomic factor promoting development is the process

ofurbanisation. In poor agrarian economies, the structural change must begin with

the change in the size of population in rural and urban sectors.

5. Religious Factors

Religion plays a great role in economic growth. It may give rise to a peculiar

sense of self-satisfaction. For example, the Hindu religion encouragesfaith in fate

and prevents people from working hard. They are educated to remain satisfied with

their lot and to hate risk and enterprise. Then our religiongives a higher place to

spirit than matterObstacles to Economic Development

Broadly speaking, the features of an under developed economy create

obstacles in the way of economic development, and hamper economicprogress.These features emerge out of economic, social, political, religious and

institutionalfactors. It would be wrong to conclude that only economic factors are

responsiblefor poverty or economic backwardness of a country. Non-economic

factors are equally responsible for the under development of an economy. The

factorsdiscouraging economic development may be classified into economic and

noneconomic factors which are as under.

The important economic factors which obstacles to economic development

are:

Vicious Circles of Poverty

Most important feature of underdeveloped countries is their dependence on

vicious circles of poverty which may be considered as the highest bottleneckin the

process of their economic development. Poverty is not only distressing but it is

also demoralising. A poor man is one who is regarded as a disgrace tothe society

and a cause of humiliation to himself, and who is unable to have proper food and a

suitable house. Neither he helps himself, nor he is able to serve others. He is

burden on society. A poor man always finds himself havingbeen caught in a

vicious circle of poverty. Since he lacks the means to prosper,he remains

poor.What is true to an individual, is also true to the country as a whole.Since an

underdeveloped economy lacks the proper and modern means of economic


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development, its economic development becomes an uphill task. Since its rate of

investment and growth potential is so little, it has to remain poor.

We find circular relationships, known as the "vicious circles of poverty

which reveal the low level of economic development in Less Developed

Countries (LDCs). Prof. Nurkse defines the concept of "Vicious Circles ofPoverty" in these words: "It implies a circular constellation of forces tending toact

and react upon one another in such a way, as to keep a poor country in a state of

poverty.... A country is poor because it is poor."

The vicious circles operate in an underdeveloped economy on the supply as

well as on the demand side. On the supply side deficiency of capital and

lowvolume of savings, create vicious circles whereas low purchasing power

createsvicious circle on the demand side


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Difference between Economic Development and Economic Growth

in India and China:-

Introduction:-

India and China are the most growing and developing nations of Asia. Thesetwo countries are the most powerful country in coming future. There growth and

development are largely affected due to their highest number of population. But

theses country were managing and increases their world trade with many different

nations and emerging as a Most Developing Nations.

Difference between Economic Growth in India and China:

In the inevitable comparisons that economists and businesspeople make

between Asia's two rising giants, China and India, China nearly always comes out

on top.

The Chinese economy historically outpaces India's by just about every

measure. China's fast-acting government implements new policies with blinding

speed, making India's fractured political system appear sluggish and chaotic.

Beijing's shiny new airport and wide freeways are models of modern development,

contrasting sharply with the sagging infrastructure of New Delhi and Mumbai. And

as the global economy emerges from the Great Recession, India once again seemsto be playing second fiddle. Pundits around the world laud China's leadership for

its well-devised economic policies during the crisis, which were so effective in

restarting economic growth that they helped lift the entire Asian region out of the

downturn.

Now, however, India may finally have one up on its high-octane rival.

Though India still can't compete on top-line economic growth the World Bank

projects India's gross domestic product (GDP) will increase 6.4% in 2009, far short

of the 8.7% that China announced in mid-January India's economy looks to be

rebounding from the downturn in better shape than China's. India doesn't appear to

be facing the same degree of potential dangers and downside risks as China, which

means policymakers in New Delhi might have a much easier task in maintaining

the economy's momentum than their Chinese counterparts. "The way I see it is that


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the growth in India is much more sustainable" than the growth in China, says Jim

Walker, an economist at Hong Kongbased research firm Asianomics.

Indias edge is due to the different stimulus programs adopted by the two

countries to support growth during the downturn. China implemented what Walker

calls the biggest stimulus program in global history. On top of governmentoutlays for new infrastructure and tax breaks, Beijing most significantly counted

on massive credit growth to spur the economy. The amount of new loans made in

2009 nearly doubled from the year before to $1.4 trillion representing almost

30% of GDP. The stimulus plan worked wonders, holding up growth even as

Chinas exports dropped 16% in 2009.

But now China is facing the consequences of its largesse. Fears are rising

that Beijings easy-money policies have fueled a potential property-price bubble.

According to government data, average real estate prices in Chinese cities jumped

7.8% in December from a year earlier the fastest increase in 18 months. The

credit boom has also sparked worries about the nations banking system. Many

economists expect the large surge in credit to lead to a growing number of

nonperforming loans (NPLs). In a November report, UBS economist Wang Tao

calculates that if 20% of all new lending in 2009 and 10% of the amount in 2010

goes bad over the next three to five years, the total amount of NPLs from Chinas

stimulus program would reach $400 billion, or roughly 8% of GDP. Though Wang

notes that the total is small compared with the level of NPLs that Chinese banks

carried in the past, she still calls the sum staggering. Policymakers in Beijing are

clearly concerned. Since December, they have introduced a series of steps to cool

down the housing market and restrict access to credit by, for example,

reintroducing taxes on certain property transactions and raising the required level

of cash that banks have to keep on hand in an effort to reduce new lending.

India, meanwhile, isnt experiencing nearly the same degree of fallout from

its recession-fighting methods. The government used the same tools as every otherto support growth when the financial crisis hit cutting interest rates, offering tax

breaks and increasing fiscal spending but the scale was smaller than in China.

Goldman Sachs estimates that Indias government stimulus will total $36 billion

this fiscal year, or only 3% of GDP. By comparison, China s two-year, $585

billion package is roughly twice as large, at about 6% of GDP per year. Most


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important, India managed to achieve its substantial growth without putting its

banking sector at risk. In fact, Indias banks have remained quite conservative

through the downturn, especially compared with Chinese lenders. Growth of credit,

for example, was actually lower in 2009 than in 2008. As a result, economists see

continued strength in Indias banks. A January report by economic-research outfit

Centennial Asia Advisors noted that based on available data, there was no sign

that domestic banks nonperforming assets were deteriorating materially. Nor do

analysts harbor the same concerns that Indias monetary policies are sending prices

of Indian real estate to bubble levels. Indias growth, though less stellar, does

have the reassuring factor that the [risks of] asset price bubbles are less, says

Rajat Nag, managing director general of the Asian Development Bank in Manila.

India maintained robust growth without Beijings hefty stimulus in part

because it is less exposed to the international economy. China s exportsrepresented 35% of GDP compared with only 24% for India in 2008. Thus India

was afforded more protection from the worst effects of the financial crisis in the

West, while Chinas government needed to be much more active to replace lost

exports to the U.S. More significantly, though, Indias domestic economy provides

greater cushion from external shocks than Chinas. Private domestic consumption

accounts for 57% of GDP in India compared with only 35% in China. Indias

confident consumer didnt let the economy down. Passenger car sales in India in

December jumped 40% from a year earlier. What we see [in India] is a

fundamental domestic demand story that doesnt stall in the time of a global

downturn, says Asianomics Walker.

The Indian economy is not immune to risks. The government has to contend

with a yawning budget deficit, and last years weak monsoon rains will likely

undercut agricultural production and soften rural consumer spending. But rapid

growth is expected to continue. The World Bank forecasts Indias economy will

surge 7.6% in 2010 and 8% in 2011, not far behind the 9% rate it predicts for

China for each of those years. Indian Prime Minister Manmohan Singh, whenspeaking about his countrys more plodding pace of economic policymaking, has

said that slow and steady will win the race. The Great Recession appears to have

proved him right.


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Difference between Economic Development of India and China:-

On May 1, World Expo 2010 will open its doors in Shanghai, China. Thetheme of the exposition is "Better City - Better Life" and signifies Shanghai's newstatus in the 21st century as a major economic and cultural center. More than 190countries and more than 50 international organisations have registered toparticipate, and China expects to receive almost 100 foreign leaders and some 70million people - the largest number of visitors in the history of the world's fairs interms of gross numbers.

What could be a more fitting venue for this World Expo than China - thecountry expected shortly to overtake Japan's prized position as the second largestmarket in the world described by economist Jeffrey Sachs as the most successfuldevelopment story in world history. The size of the economy has doubled everyeight years for three decades - the fastest rate for a major economy in recorded

history. A recent report by PricewaterhouseCoopers forecasts that China couldovertake the US economy as early as 2020.

But China is not alone. India is also among the world's fastest growingeconomies and together with China, has contributed nearly 30% to globaleconomic growth as the balance of economic power continues to shift from Westto East. Contrary to popular belief, both China and India are not emergingeconomies, they are actually "re-emerging." China and India have particularstrengths and competitive advantages that have allowed each of them to weatherthe global financial crisis better than most countries and to gain ground in the

"catching-up game" with the developed world.

Beware the sleeping giant

India, often referred to as the "sleeping giant", has emerged as the fourthlargest market in the world when its GDP is measured on the scale of purchasingpower parity. Both economies are increasing their share of world GDP, attractinghigh levels of foreign investment, and are recovering faster from the global crisisthan developed countries. Each country has achieved this with distinctly differentapproaches - India with a "grow first, build later" approach versus a "top-down,

supply driven" strategy in China.

Although China's income per head is still low at about $3,566, less than one-tenth of what Americans have, it is more than three times higher that of Indians(just over $1,000). China is currently the fifth fastest-growing consumer economyin the world, and is on course to become the third-largest by 2020, with India closebehind and expected to move into the fifth position by 2025. Chinese consumers


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are indeed putting into practice Deng Xiaoping's famous quote, "It is glorious toget rich". The country recently surpassed the United States to become the world'slargest automobile market and has huge potential remains in terms of futurepurchasing power.

China is also the first country in the world to have met the poverty reduction

target set in the U.N. Millennium Development Goals, and enjoys the remarkablesuccess of having lifted more than 400 million people out of poverty. Thiscontrasts sharply with India, where 456 million people (42% of the population) stilllive below the poverty line, defined by the World Bank at $1.25 a day.

Different means, same end

The two countries' economic performance has been very differentlyorchestrated. China's growth has been mainly investment and export-driven,focusing on low-cost manufacturing, with domestic consumption as low as 36%

percent of GDP. On the other hand, India's growth has mostly been derived from astrong services sector and buoyant domestic consumption. India is also much lessdependent on trade than China, relying on external trade for about 20% of its GDPversus 56% for China.


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Conclusion

Chinese economy has grown at much faster rate than Indian, but India seems to becatching up. The average estimated productivity growth rate of China (5.9%) ismore than double that of India (2.4%). The dierence between same-deator average growth rates of India and China reducessignicantly (by as much as 70%) for manufacturing sector. Both import and exportare signicantly correlated of with trends in growth rate of output-per-worker andproductivity for India and China pointing towards presence of conventional Trade-Growth link. While increased growth of spending are accompanied by increase thegrowth rate of productivity in China, in India the correlation is negative. For India,service sector growth trend is more strongly correlated with government spendingand infrastructure.

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Study of Economic Growth & Development