Diagnosing development bottlenecks: China and India

Wei Li, Taye Mengistae () and Lixin Xu

No 5641, Policy Research Working Paper Series from The World Bank

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 (search for similar items in EconPapers)
Date: 2011-04-01
New Economics Papers: this item is included in nep-cna, nep-dev, nep-mic and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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