China and India: Those big outliers

Why have China and India been able to grow so quickly? This column argues that while the industrial policies pursued by both countries up until the 1980s led to gross mistakes and inefficiencies, China and India would not be where they are now without them. Their export baskets are far more sophisticated and diversified than expected given their income per capita.

The emergence of China and India on the world stage has aroused much interest. As in many other areas of (policy) economics, just how these countries “did it” and the lessons for other countries is something economists either do not know, do not agree on, or both.

In the case of China, the literature seems to agree that capital accumulation, industrialisation, and export-led growth were key factors after 1979. Economists like Gregory Chow (1993) or World Bank chief economist Justin Lin, argue that, before 1979, Chinese central planning was a failure, economic performance was poor, and “haste made waste” (Lin 2010).ⁱ

In the case of India, its poor performance during the 1960s and 1970s, referred to as “Hindu growth”, has often been attributed to, among other things, poor planning, and the license-permit Raj (Bhagwati and Desai 1970). Yet economists such as Bardhan (2006) and Nagaraj (2010) argue that infrastructure bottlenecks and demand–side constraints have been neglected in the discussion of India’s industrial performance.

A few things stand out:

(i) In 1962 China exported with RCA>1 105 products, of which only 14 were “core” products.^vi The bulk of the products China exported with RCA>1 were divided equally between tropical agriculture, animal products, cereals, labour intensive, and capital intensive products (excluding metals).^vii By 1980, China was exporting 200 products with RCA>1, 39 of them in the core. By 2007, China exported 265 products with RCA, of which 106 were core commodities.

India, on the other hand, exported a total of 71 products with RCA>1 in 1962, only 4 were in the core. In 1962, animal products, cereals, and capital intensive products (excluding metals) accounted for more than half of the products exported with RCA>1 (44 out of 71 products). By 1980, the number of products that India exported with RCA>1 had increased to 157, 25% of which were in core products. In 2007, out of 254 products exported with RCA>1, 84 were in the core.

And read more : Vox

India, Where are we heading towards?

I came across a nice post from Ajay Shah, on the Indian development project, exuberant spending, corruption, political system, State capacity. As we have the growth rate of 9% GDP per year, where are we heading towards, what are the challenges we have, a nice analysis ...

Are we considering the history of other countries rise and fall (Greek, Spain, UK, US!) , are we understanding what is happening now in the world economy ?, are we learning lessons from these ? are we going to repeat the same mistake and make a new history ?...

Will the Indian development project succeed? It could, but we cannot assume that it will. We have a lot going for us, but we have to keep our eyes on the above four balls ( exuberant spending, corruption, political system, State capacity). in order to make it work.

to read more here

Is Chennai, New Detroit ?

The chennai with 5 million people booming as international car makers ( Ford Motor Co., Hyundai Motor Co, Nissan Motor Co., Renault SA, Daimler AG and BMW AG ) and suppliers have set up shop.

They are spending billions of dollars to make Chennai one of the world's biggest hubs of small cars for export as well as for increasingly affluent Indians. Soon, the city will turn out close to 1.5 million vehicles a year, more than any one U.S. state made last year.

Read more WSJ

India Inflation 11%! What is happening

Reuters India, points that the India's inflation in june is above 10%, considering the increase of the fuel price, inflation is expected to move to 11%. To ease the inflation, RBI take the stance of tightening the monetary policy, this will ease the pressure on the inflation.

G20 Nations
Among the G20 nations India's RBI takes a tough stands on raising key rates, may be because the india is one of the country has the highest inflation (double digit) among others (even compared to other developed countries).

Key Rate Raise
RBI raised the key interest rates 4th time this year and said they will take 'baby steps' to raise key rates than a huge leap at once. It means RBI will raise key rates in coming months.

Concern
Because of inflation, a bigger worry, however, is that growing risk aversion would keep foreign investors out of India, slowing capital inflows needed to fund the nation's widening current account deficit.

Will home, auto loans rates rise?
Eventhough the RBI said, the key rates rise is to curb the inflation, I could see (to my limited knowledge) there is a possibility of raise in home and auto loans in near future. The goverments and banks say they look for alternative measures instead of raising interest rate they are also considering serious of implication on economy.

Note
A point to be noted is, through out the history, the goverments use to underestimate the inflation. If we have correct statistics, we might have the actual inflation around 20%.

How does monetary policy affect inflation?
Wages and prices will begin to rise at faster rates if monetary policy stimulates aggregate demand enough to push labor and capital markets beyond their long-run capacities. In fact, a monetary policy that persistently attempts to keep short-term real rates low will lead eventually to higher inflation and higher nominal interest rates, with no permanent increases in the growth of output or decreases in unemployment. As noted earlier, in the long run, output and employment cannot be set by monetary policy. In other words, while there is a trade-off between higher inflation and lower unemployment in the short run, the trade-off disappears in the long run.

Policy also affects inflation directly through people's expectations about future inflation. For example, suppose the Fed eases monetary policy. If consumers and businesspeople figure that will mean higher inflation in the future, they'll ask for bigger increases in wages and prices. That in itself will raise inflation without big changes in employment and output.

Are These Two Commodities Are Set to Blast Higher in 2010? Gold - Oil ?

Do you know the Oil and Gold are the most lucrative and potentially explosive profits in the investment world. This is simple because supply and demand is the key driver for many of these everyday products, it’s a sector ripe for volatility and speculation from hedge funds and large institutions.

Oil prices should continue to rise next year, due to the following factors…

• Global oil demand is ticking higher.
• Geopolitical issues are ongoing in the Middle East and oil-producing parts of Africa.
• Oil is a great speculator’s market – a fact that the massive amount of media attention helps to perpetuate.

Right now, oil is still about $10 away from its high of $82 in October, but look for the price to test the $100 level again in 2010.

Gold $ 2,000 ?!

Having begun 2009 trading around $850 an ounce, gold has spent the year shooting higher. The frenetic run culminated with an all-time high of $1,218.

The reason is two-fold: The U.S. dollar’s demoralizing decline, coupled with the weak state of the U.S. economy that has seen many investors flock to traditionally safer investments like gold. Mix in a hefty bout of bullish speculation and you’ve got the recipe for higher prices.

But with gold prices falling from that lofty perch over the past couple of weeks, we may well see plenty of investors trying to “buy on the dip” and take advantage of the next upward move. These are likely the same investors who believe the dollar will continue to languish, so expect to see gold set more new highs in 2010. Some analysts are even calling for gold to top $2,000 per ounce.

Will it reach $ 2000 ?

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Gold: What is the Return on Investment (ROI)?

Investing in gold usually means a long-term investment for five to ten years or more. Is there a right time to invest in gold? Many people ask this question, since the price keeps changing, almost on an hourly basis. In today’s context, the gold price is on an upward trend and sometimes it retains the same value. Several financial analysts suggest that gold investment is a convenient, safe and value for money.

What is the root cause for the rise in value?
The price of gold is based on the value of the US dollar. The international trade is dependent on the common exchange currency. However, some analysts suggest that there is a possibility of a correction in gold prices due to profit booking.

If you deeply analyze the facts, you will find that the value of gold does not actually change very much at all. The value of gold over the past 200 years has hardly changed when compared with the value of other goods in market. If you compare one ounce of gold today, you will be able to purchase almost the same amount of goods as you could have done 50 years ago. The only change is the value of the currency and not the gold. Inflation, recession, all affect the value of the fiscal currency but generally do not affect gold.

What is the ROI?

However, One ounce of gold purchased in 1973 for $64 is now worth more than $900. In the long run, the outlook for gold market is strong as crude prices are rising and dollar is weakening.

It is likely that this scenario will continue and in the future years. Gold has always provided a high return over a long period of investment. The other factor, which adds to the increase in value is, decrease in gold mining (supply) and increase in demand. You are likely to get a ROI of 1000%, if you continue to invest in Gold for a long-term basis.

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Reserve Bank of India has one of the best monetary policies in the world!

Recently there was an interview in CNBC TV 18, Marc Faber discussed on inflation, currencies, commodities, stocks and more. Particularly he pointed out about Indian Reserve Bank.

India. Faber is bullish longer-term. Short-term, there could be a correction. India is one of the best protected countries because of less vulnerability to the export sector. He also believes the Reserve Bank of India has one of the best monetary policies in the world – supervise the financial system closely, relatively tight, and mindful not just of core inflation but other price levels like asset prices.

Read more on his interesting views

India will have more people than China!

The 2009 World Population Datasheet - published by the Population Reference Bureau - gives a number of important statistics on population trends, including the following:

• India will have more people than China within a couple of decades.

• 97% of global population growth over the next 40 years will occur in Asia, Africa, Latin America and the Caribbean