Diagnosing Development Bottlenecks : China and India

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 prod...

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Bibliographic Details
Main Authors:	Li, Wei, Mengistae, Taye, Xu, Lixin Colin
Format:	Policy Research Working Paper
Language:	English
Published:	2012
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 http://hdl.handle.net/10986/3405

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Summary:	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.