focused in particular on expensive and unreliable power supply as a source of development bottleneck in India (World Bank 2004). In China, reliability of power supply has also been a concern.

We therefore proxy for the quality of physical infrastructure that a firm faces in the city where it is located by the city average of the _negative_ of the proportion of annual sales lost due to power outages that other businesses in the city report in the World Bank surveys. By excluding the firm’s own report, we hope to minimize simultaneity biases caused by a likely reverse causation where a more productive firm is better equipped to deal with power outages, by, for example, investing in onsite power generating capacity. On average, sample Indian firms report 9 percent in lost sales against 2 percent in the China sample (table 3). The median difference is also 7 percent and statistically significant. Thus, China leads India in the quality of power supply.<sup>14</sup> An alternative measure of power supply is the city share of firms having their own generators, which is also available from the data set. Using own generators is obviously a more expensive way to supply electricity for normal operations. In general, own generating capacity is often used as a source of emergency backup power. It would be more costly to rely on it for normal usage, and would require more capital expenditure to scale up when the firm expands production. In addition, a firm that uses continuous production processes would find any disruption in power supply unacceptable and would therefore invest in onsite emergency power even if external power supply is deemed reliable. The installation of emergency generating capacity by firms may not be a clean indicator of poor reliability of power supply from the grid. It is unfortunate that the surveys did not make a distinction between investing in own generating capacity as a substitute for electricity supply from the grid or as an emergency backup in the event that power transmission from the grid is interrupted

> 14 Some argue that roads (quantity and quality) are a better measure of infrastructure. We do not have citylevel measures of road quantity and quality. However, the significant advantage of China in infrastructure should hold up if we instead rely on road measures. According to Postigo (2008), China has approximately 40,000 km of expressways, while India has only 300 km. Business perception of road quality is 4.6 (out of the 1–7 scale, with 1 being the worst and 7 being the best) in China, significantly higher than in India (3.0). The disadvantage of India is also reflected in its input: investment in road infrastructure accounts for 0.5 percent of India’s GDP, but 3.5 percent in China. Moreover, the majority of roads are built in the countryside in India while most roads in China are for an expressway. India does have more total mileage in terms of road networks, but these are largely low-quality rural roads. Since all of our sample firms are located in cities, and what are relevant for them are largely high-quality expressways and paved ways, we’re confident that China’s advantage in infrastructure would be even more dramatic than as measured by power reliability.

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