Diagnosing Development Bottlenecks: China and India

31 Pages Posted: 22 Nov 2011

See all articles by Wei Li

Wei Li

Cheung Kong Graduate School of Business

Taye Mengistae

World Bank

Lixin Colin Xu

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

Date Written: December 2011

Abstract

Beginning with lower income level in 1980, China's 2006 per capita GDP stands more than twice that of India's. We investigate the role of business environment in explaining China's productivity advantage using recent firm‐level survey data. We find that China has better infrastructure, more skilled workers and more labour‐hiring flexibility than India, but worse access to finance and a 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 labour flexibility. Labour flexibility also appears to be 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 labour flexibility with infrastructure and access to finance. Interestingly, regulatory uncertainty has adverse effects in India but not in China. Our empirical analysis suggests that it is important to consider country‐specific growth bottlenecks and the indirect effects of policy reforms.

JEL Classification: O1, O4, O5, P5, K2, L5, L6, J4, G2

Suggested Citation

Li, Wei and Mengistae, Taye Alemu and Xu, Lixin Colin and Xu, Lixin Colin, Diagnosing Development Bottlenecks: China and India (December 2011). Oxford Bulletin of Economics and Statistics, Vol. 73, Issue 6, pp. 722-752, 2011, Available at SSRN: https://ssrn.com/abstract=1963041 or http://dx.doi.org/10.1111/j.1468-0084.2011.00676.x

Wei Li

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Taye Alemu Mengistae

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 NW
MSN3-311
Washington, DC 20433
United States

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

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3
Abstract Views
544
PlumX Metrics