Why Has China’s Economy Taken Off Faster than India’s? :Why Has China’s Economy Taken Off Faster than India’s? David E. Bloom, David Canning, LinLin Hu, Yuanli Liu, Ajay Mahal, and Winnie Yip Presentation at Pan Asia 2006 conference Stanford Center for International Development June 3, 2006


Slide 2:Real income per capita Source: Penn World Table Version 6.1 (updated by Heston, Summers, and Aten in 2002)


Changes in health: life expectancy :Changes in health: life expectancy Source: World Bank, World Development Indicators 2005.


Infant mortality rate :Infant mortality rate


Total fertility rate :Total fertility rate


Age structure changes: workers/dependent :Age structure changes: workers/dependent Source: World Bank, World Development Indicators 2005.


Age structure changes(annual average growth rates of population) :Age structure changes(annual average growth rates of population)


Methodological approaches :Methodological approaches Decomposition analyses decompose growth in income/capita into growth in income/worker growth in working age population per capita growth in labor participation rate shift-share decomposition of growth in income/worker into growth in productivity within sectors (agriculture, industry, and services) reallocation of labor from low to high productivity sectors Estimate parameters of a conditional convergence model of economic growth that explicitly accounts for demographic change


Results of decomposition analyses :Results of decomposition analyses faster growth in output per worker accounts for most of the speedup in per capita income growth in China and India most of the increased growth of GDP per worker in China and India was due to increased growth of productivity within sectors


Regression analyses :Regression analyses Regression of growth of income per capita on initial income per capita, determinants of steady-state level of income (life expectancy, age structure, policy environment, capital stock), changes in age structure, and sectoral change Cross-country panel data for 1960-2000, from Penn World Table 6.1 and the World Bank’s World Development Indicators 2005 Parameters in the model are common across countries. No country fixed effects. Time dummies for each 5-year growth period. Growth in each five year period 1960-2000 is explained by beginning-of-period variables and within-period variables (instrumented with their lagged values).


Special issues for India and China :Special issues for India and China education data before 1975 are missing from Barro and Lee (2000) and are constructed from national education data Sachs-Warner “openness to trade” variable is zero for both India and China throughout the period. We construct a trade “policy” variable for every country based on the residual from a regression of log(Im+Ex)/GDP on log population size and log income per capita tests show no need for India and China dummies tests that the time dummies apply to India and China are rejected; we therefore model growth in India and China as independent of the time dummies


Table 2 Growth Regressions (Dependent variable: Growth rate of GDP per capita) :Table 2 Growth Regressions (Dependent variable: Growth rate of GDP per capita)


Slide 17:Sources of the Increase in Predicted Growth Rates


Health and full income :Health and full income Health is a production input, but also adds directly to welfare. Value of life studies place high monetary valuation on small risks of death. Becker, Philipson and Soares (2005) translate increases in survival rates into incremental annual incomes required to yield the same utility level as with the original survival schedule. Health improved faster in India than in China between 1980 and 2000. Looking at 1980-2000: when we monetize the value of health improvements in China and India, the takeoffs were not as divergent as if we only looked at income.


Slide 19:Full income in China


Slide 20:Full income in India