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 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.

Bibliographic Details

Main Authors:	Li, Wei, Mengistae, Taye, Xu, Lixin Colin
Language:	English
Published:	2011-04-01
Subjects:	ACCOUNTING, ADOPTION OF INFORMATION, ADVERSE EFFECTS, AVERAGE PRODUCTIVITY, BACKUP, BACKUP POWER, BANKING SYSTEM, BANKS, BOOK VALUE, BUSINESS CLIMATE, BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENTS, BUSINESS OPPORTUNITIES, BUSINESSES, CAPABILITY, CAPITAL EXPENDITURE, COBB-DOUGLAS PRODUCTION FUNCTION, COLLECTIVE AGREEMENT, COMPARATIVE ANALYSIS, COMPETITIVE MARKET, COMPETITIVENESS, COMPUTER TECHNOLOGY, COMPUTERS, CONTRACT LABOR, CONTROL SYSTEM, CORRELATION MATRIX, COUNTRY-SPECIFIC FACTORS, CREATING JOBS, CROSS-SECTIONAL DATA, DEBT, DEMOCRACY, DEREGULATION, DEVELOPMENT ECONOMICS, ECONOMIC ANALYSIS, ECONOMIC CONDITIONS, ECONOMIC DEVELOPMENT, ECONOMIC EFFICIENCY, ECONOMIC GROWTH, ECONOMIC REFORM, ECONOMICS, ECONOMIES OF SCALE, ELECTRICITY, EMPIRICAL ANALYSIS, EMPLOYEE, EMPLOYMENT, EMPLOYMENT SIZE, ENTERPRISE SECTOR, ENTERPRISE SURVEYS, ENTREPRENEURSHIP, ENVIRONMENTAL, ENVIRONMENTS, EQUILIBRIUM, EQUIPMENT, EXPENDITURES, FINANCIAL REFORM, FINANCIAL SYSTEM, FIRM ENTRY, FIRM LEVEL, FIRM PERFORMANCE, FIRM PRODUCTIVITY, FIRM SIZE, FIRM-LEVEL PRODUCTIVITY, FOREIGN INVESTMENT, GEOGRAPHIC REGIONS, GLOBALIZATION, GOVERNMENT INTERVENTION, GROWTH STRATEGIES, HUMAN CAPITAL, IMPLEMENTATIONS, INCOME, INDUSTRIAL EMPLOYMENT, INFORMATION TECHNOLOGY, INNOVATION, INNOVATIONS, INSTALLATION, INTERMEDIATE INPUTS, JOB CREATION, JOB SECURITY, JOBS, LABOR DEMAND, LABOR DISPUTES, LABOR FORCE, LABOR FORCE SKILLS, LABOR LAWS, LABOR MARKET, LABOR MARKET FLEXIBILITY, LABOR MARKET REFORMS, LABOR MARKETS, LABOR PRODUCTIVITY, LABOR REGULATION, LABOR REGULATIONS, LARGE CITIES, LICENSE, LITERACY RATE, LOCAL FIRMS, LOCAL INFRASTRUCTURE, LOCAL LABOR MARKET, MANUFACTURING, MANUFACTURING INDUSTRIES, MARKET MECHANISM, MATERIAL, MEDIUM ENTERPRISE, NETWORKS, OPEN ACCESS, OPERATING COSTS, OUTPUTS, PERMANENT WORKERS, PHYSICAL INFRASTRUCTURE, POLICY ENVIRONMENT, POLICY FORMULATION, POLITICAL ECONOMY, PRIVATE FIRMS, PRIVATE SECTOR, PRIVATE SECTOR DEVELOPMENT, PRODUCERS, PRODUCT MARKET, PRODUCTION COSTS, PRODUCTION FUNCTIONS, PRODUCTION PROCESS, PRODUCTION PROCESSES, PRODUCTIVE FIRM, PRODUCTIVE FIRMS, PRODUCTIVE SECTOR, PRODUCTIVITY DIFFERENTIAL, PRODUCTIVITY EFFECTS, PRODUCTIVITY GAP, PRODUCTIVITY GROWTH, PROFITABILITY, PUBLIC POLICY, RELIABILITY, RESOURCE ALLOCATION, RESULT, RESULTS, RETAIL STORES, SAVINGS, SERVICE INDUSTRIES, SKILLED LABOR, SKILLED WORKERS, SOCIAL DEVELOPMENT, STATE BANKS, STATE-OWNED ENTERPRISES, TECHNOLOGICAL DEVELOPMENTS, TELECOMMUNICATIONS, TEMPORARY WORKERS, TOTAL EMPLOYMENT, TOTAL FACTOR PRODUCTIVITY, TRADE UNIONS, TRAGEDY OF THE COMMONS, TRANSACTION, TRANSACTION COSTS, TRANSITION ECONOMIES, TRANSMISSION, TRANSPORT, USE VALUE, USES, WEB, WELFARE EFFECTS, WORKER, WORKING CAPITAL,
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 https://hdl.handle.net/10986/3405
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