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.

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