Academic journal article International Journal of Business

Overtaking the U.S. Economy by China and India: How Sound Are the Expectations?

Academic journal article International Journal of Business

Overtaking the U.S. Economy by China and India: How Sound Are the Expectations?

Article excerpt

I. INTRODUCTION

At the turn of this century euphoria ran deep and high that Asia's two most populous countries--People's Republic of China (PRC) and India--would overtake the long-held stronghold of the world, which is the U.S. economy, and economic balance of power would swivel. It was then and it is now the hope of the eastern countries, but the question remains after 15 years into this new century if the hope and the euphoria are sound and valid. Hope and expectation are not necessarily equivalent. In view of that distinction and clarity, it is imperative that we attempt to assess the potentials of the growth of these three countries and the trajectories of the growth rates. In this context, the overall pictures of the gross domestic products (GDP), money supply, trade balance (or current account balance), net capital inflows (capital account balance), exchange rate movements, and so on are posited for analytical scrutiny. We then establish the linkage and causation of these factors in our analysis of the occurrences in these countries under examination.

Note the vital economic statistics of the United States, China and India at the outset of this century and the latest data on these items, which are presented later in this work. It may give a good sense that these Asian economies had a good potential for big take off in Rostovian sense. Now the question is: where are these Asian economies vis-a-vis the U.S. economy now. It must be noted, however, that almost depression-like deep recession in 2007-2008 has affected every economy of the world, although effects are quite unequal and disproportionate.

II. ECONOMIC SCENARIOS

A. The Economy of the People's Republic of China

The economy of China (People's Republic of China) is the world's second largest economy by nominal GDP, and the world's largest economy by purchasing power parity according to the IMF. Until 2015 China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years. Due to historical and political facts of China's developing economy, China's public sector accounts for a bigger share of the national economy than the burgeoning private sector.

China is a global hub for manufacturing, and is the largest manufacturing economy in the world as well as the largest exporter of goods in the world. It is also the world's fastest growing consumer market and second largest importer of goods in the world, has been a net importer of services products. For more details, one should examine (Shenkar, undated).

Being the largest trading nation in the world, it plays a vital role in international trade, and has increasingly engaged in trade organizations and treaties in recent years. This country became a member of the World Trade Organization in 2001. It also has free trade agreements with several nations, including China--Australia Free Trade Agreement, China--South Korea Free Trade Agreement, ASEAN--China Free Trade Area, Switzerland and Pakistan. On a per capita income basis, however, it ranked 77th by nominal GDP and 89th by GDP (PPP) in 2014, according to the International Monetary Fund (IMF). Here are some relevant statistics in Table 1.

B. The Economy of India

The economy of India is the 9th largest in the world by nominal GDP and the third-largest by (PPP). The country is classified as a newly industrialized country, one of the G-20 major economies, a member of BRICS. India's economy became the world's fastest growing major economy from the last quarter of 2014, replacing the People's Republic of China.

The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. It has the potential to become the world's 3rd-largest economy by the next decade, and one of the largest economies by mid-century. …

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