Structural Change and Economic Development in China and India

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1. Introduction

China since 1978 and India since 1992 have passed through a phase of very rapid economic growth accompanied by very important structural changes in the productive systems and severe and largely unresolved social problems. The objective of this paper is to evaluate and compare some aspects of the different growth patterns of the two economies analyzing in particular the relations between structural change and economic development.

In doing so, we will utilise three concepts: Gerschenkron's "relative economic backwardness" (Gerschenkron, 1962; Fua, 1980), "the fordist model of growth" (Valli, 2002, 2005, 2009) and Syrquin's distinction between the productivity effect and reallocation effect (Syrquin, 1986). The first concept is well known and stresses the fact that an emerging backward economy may benefit from some advantages, such as the adoption of modern technologies coming from more advanced countries and the possibility of transferring large masses of the labour force from low productivity sectors (agriculture and traditional tertiary activities) to sectors with higher productivity (industry and modern services).

The second concept, which is not to be confused with the more general concept of "Fordism" of Gramsci or of the French regulation school, (3) is mainly associated to a phase of strong growth of some interlinked industrial and service sectors where scale economy and network economies are of crucial importance.

The third concept is a useful device to decompose productivity growth and comes from a long and important tradition of studies on structural change and development carried on by authors such as Kuznets (1966), Chenery and Syrquin (Chenery et al., 1979; Chenery, Robinson, Syrquin, 1986; Syrquin, 1986; IMF, 2006).

2. The Third Wave of the Fordist Model of Growth

The US experienced the first wave of the fordist model of growth for some decades following 1908. (4) West Europe, Japan and the four Asian tigers passed through their second wave in the 1950s and the 1960s. Since the late sixties, the US, Western Europe and Japan experienced a crisis of the fordist model and have entered a post-fordist phase. In contrast, China and India have entered the third wave of the fordist model of growth respectively in the 1980s and the 1990s, benefiting at the same time from some aspects of post-fordism and from several advantages of relative economic backwardness.

In the US the crucial sectors of the fordist model of growth were the automobile industry with all its interlinked sectors (steel, oil, tyres, auto repair, construction of roads and motorways, etc.). When in 1908 the Ford motor corporation launched, as a mass production product, the new Model T, which was much less expensive than pre-existing cars, it greatly accelerated the demand and the diffusion of the automobiles in the US market, and stimulated a rapid expansion of the steel, tyre and oil industries, road building, etc. In the 1980s in China, in a very different economic and socio-political context, the crucial sectors of the fordist model of growth were instead the electrical domestic appliances and their interlinked sectors (steel, plastics, electricity, etc.). In the 1990s in China there was the addition of microelectronics, telecommunication and energy. Finally, since the 2000s, there also has been a rapid growth in the production of industrial vehicles, motorcycles and automobiles. In India, since 1992, machinery, household electric appliances, steel, pharmaceuticals, and, more recently, software services, telecommunication, motorcycles, automobiles and air communication have been the crucial dynamic sectors.

3. Structural Transformation

Most empirical analyses about structural transformation have two severe shortcomings. They often only consider the changes between the three great productive branches: agriculture, industry, services. However, also the changes among the different sectors of industry and services have great importance. …