Diagnosing Development Bottlenecks: China and India

40 Pages Posted: 20 Apr 2016

See all articles by Wei Li

Wei Li

affiliation not provided to SSRN

Taye Mengistae

World Bank

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Date Written: April 1, 2011

Abstract

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.

Keywords: Environmental Economics & Policies, Labor Policies, Labor Markets, Banks & Banking Reform, E-Business

Suggested Citation

Li, Wei and Mengistae, Taye Alemu and Xu, Lixin Colin, Diagnosing Development Bottlenecks: China and India (April 1, 2011). World Bank Policy Research Working Paper No. 5641, Available at SSRN: https://ssrn.com/abstract=1822960

Wei Li

affiliation not provided to SSRN

Taye Alemu Mengistae (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Lixin Colin Xu

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

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