Structural Change, Globalization and Economic Growth in China and India

(ProQuest: . denotes formulae omitted.)1. IntroductionThe aim of this essay is to analyze, in a comparative perspective, the relation between structural change, the process of globalization and economic growth in two great emerging economies, China and India, in their period of rapid development.The studies on structural change and the patterns of economic development were introduced in Japan by Akamatsu (1935 and 1962) in an original way, the "wild-geese-flying approach" then generalized by Kiyoshi Kojima (2000) and Ozawa (2001 and 2010). The structural view was also independently furthered in a different way by other great authors such as Colin Clark (1940), who inaugurated the three-sectors approach, Simon Kuznets (1957) and Alexander Gerschenkron (1962). Between the 1960s and the late 1980s the main contributions were due to Chenery (1960), Chenery and Taylor (1968 ), Taylor (1969), Keesing and Sherk (1971), Chenery and Syrquin (1975), Chenery et al. (1979), Kader (1985), Chenery, Robinson and Syrquin (1986), Syrquin (1988), Chenery and Syrquin (1989). Recent contributions have mainly focused on cross-country analyses, more disaggregated approaches and country studies. For example, Haraguchi and Rezonja (UNIDO, 2010), De Vries et al. (2012), McMillan and Rodrik (2011), Lin (2011), Lin and Rosenblutt (2012) have carried out important cross-country analyses; Li, Menginstae et al. (2011) have focused on China and India; Kochhar et al. (2006) on India; Wang et al. (2007) on China. However, most of the crosscountry studies have jointly studied market or mixed economies, often overlooking the particular structural features of Communist central planned economies like China up to 1978 as well as of heavily regulated mixed economies like India up to 1992. These features have greatly influenced the period of transition and rapid growth in the two great Asian economies. Countries in profound transition between different systemic mechanisms of regulation and control in the economy may have very different structural transformations with respect to countries that in the same period have fully maintained their systemic characteristics.Moreover, few contributions have tried to analyze the relations between structural change, globalization and economic growth. The initial conditions, the pace of economic growth and the way in which a country has entered the globalization process are fundamental factors in order to understand the different economic structures of China and India and their changes over time.The paper is structured as follows. Paragraph 2 introduces the initial structural conditions in China and India, while paragraphs 3 and 4 trace the path of economic development and the process of globalization in the two countries. Social problems related to structural change and globalization are briefly discussed in paragraph 5. To better typify structural changes, a shift-share decomposition analysis on aggregate labor productivity is presented in paragraph 6, followed by an econometric investigation on the relation between economic growth, structural change and globalization in paragraph 7. Paragraph 8 concludes.2. China and India: the initial structural conditionsAs table 1 shows, some important structural differences already existed between China's and India's economies in 1978, when China's radical economic reforms began.In 1978, the percentage share of agriculture on total employment was about the same in the two countries, while the percentage on value added was much higher in India. Although in 1978 India had a level of per capita GDP in PPPs somewhat higher than China, the share of industry was already higher in China than in India, in terms both of value added and employment, while the share of services was much lower in China than in India. This is largely a consequence of a systemic difference, namely the fact that China was a Communist centrally planned economy, where services were usually overlooked and heavy industry was strongly privileged over light industry. …