Diagnosing Development Bottlenecks : China and India
Although it had a a lower income level than India in 1980, China's 2006 per capita gross domestic product stands more than twice that of India's. This paper investigates the role of the business environment in explaining China's prod...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110425160503 http://hdl.handle.net/10986/3405 |
| Summary: | Although it had a a lower income level
than India in 1980, China's 2006 per capita gross
domestic product stands more than twice that of
India's. This paper investigates the role of the
business environment in explaining China's productivity
advantage using recent firm-level survey data. The analysis
finds that China has better infrastructure, more skilled
workers, and more labor-hiring flexibility than India, but a
worse access to finance and higher regulatory burden.
Infrastructure appears to be a key constraint for India: it
lags significantly behind China, yet it has important
indirect effects for the effectiveness of labor flexibility.
Labor flexibility is also likely a major constraint for
India, as evident in the predominance of small firms, the
importance of firm size in accounting for India's
disadvantage in productivity, and the complementarity of
proxies of labor flexibility with infrastructure and access
to finance. Interestingly, regulatory uncertainty has
adverse effects in India but not in China. The empirical
analysis suggests that it is important to consider
country-specific growth bottlenecks and the indirect effects
of policy reforms. |
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