Comparing Economy Size Of India And China

Comparing Economy Size Of India And chinawareoer the next twenty geezerhood, what is the likelihood that India will overtake chinaware in terms of the sizing of its economy? Evaluate distributively economy apply Khans frugalal rent analysis and single other(a) analytical framework. individualism the factors driving stinting growth in recent years and the kind and political bases of these factors. Will they sustain themselves over the next several decades? china and India are the two gargantuanst create countries in the manhood and fall in both(prenominal) been experiencing rapid economic growth since the 1980s. With similar development strategies, the two economies wish for both insulated themselves from the universe economy before eventually making the prompt to reform/liberalise (Srinivasan, 2002). Although, from similar economic backgrounds, the political environments of the two economies couldnt be more(prenominal) different and could be argued as affecting feature number one woods of economic growth. FDI trains are seen as an important determinant of both the growth and size of an economy and there are not equal differences mingled with the two and and so it is around this topic the analysis will focus (Wei, 2005). FDI has been shown to greatly sacrifice to Chinas economic growth, in particular through a broad pluck of manufacturing activities. In comparison, India has attracted very little manufacturing FDI and instead any inward FDI has tumidly gone to services, electronic and computing industries (Huang and Khanna, 2003). This test will argue that India is probably to overtake China in terms of the size of its economy in several decades and that India does not need to try to match Chinas levels of FDI cod to the expression and composition of the economy, which reflect what it is, an world-wide market recess (Balasubra moream, Sapsford, 2007). In particular, the essay will begin by using Khans economic rents analysis to prise each economy before exploring the determinants of difference in the midst of China and India in market performance, including a advert at the similarities and differences of both, and the returns and disadvantages of investing in each in relation to the firm before drawing conclusions as to the in store(predicate) of these two emerging economies in the world market.Rent is defined as the portion of earnings in excess of the minimum amount mandatory to attract a worker to accept a particular duty or a firm to enter a particular fabrication (Milgrom and Roberts, 1992, p.269). The existence of rent in capital employed to a particular activity implies inefficiency in the processes of that activity save not in slightly cases where their existence is necessary. Rent whitethorn sometimes indeed be effectual and even essential in promoting economic growth and development. These complexities were not punctually explored in older rents analysiss such as the competitive ma rket posture where no distinction was made between the minimum income that would be certain (in terms of alternative comparison) and the minimum amount that would be realistically pass judgment before reciprocating with the goods service (Khan, 2000). Ultimately, previous models were unable to compare and explain the large differences in performance of countries.Firstly, this essay will explore corruption as a rent and its consequential effect as a driver of economic growth. Corruption is defined as when public officials break the lawfulness in pursuit of their private interest (Khan, 2006 p.1), ultimately allowing the creation of rents. some(prenominal) economists have stated a link between corruption and economic performance (Knack and Keefer, 1997) and this will be explored in the case of China and India. frequently the powers given to public officials enable the ability or someone to obligation for bribes in exchange for allocating rents to those who layabout get for th em (Khan, 2006, p.5). The bribes in such a situation are illegal however, the creation of such rents is seen as charge the risk, thus the incentive outweighs the risk. There are two drivers of corruption the graduation exercise is the need for a formal state so that the organisation rear create legal rents, and secondly, is the formation of obstacles which results in people impulsive to pay money to access certain rents. Evidence suggests that corruption has a negatively charged effect on society and in particular, China has a broad history of corruption. Most recently, in 2000, Margolis noted that corruption in china has rarely been worse or relateed higher(prenominal) (Margolis, 2000 p.1). Corruption in China is in numerous economists minds aiding the growth of such a large economy, and, due to its sheer size is difficult to regulate, however, measures are beingness taken to slam trim back on corruption due to increased tension between the state and the public. India r eflects a similar story as with most exploitation nations that corruption is indeed widespread. however, corruption in India is reduce than China and for galore(postnominal) offers a more cute host environment for international firms. Indias government have active responses to corruption and the results of such have seen India go down in rankings. Thus, using the rent of corruption, Indias economy could be said as being in a more politically stable mind put in.Furthermore, other rents as highlighted by Khan fundament be employ to grant a deeper analysis of both economies. Monopoly rents are dependent on the level of market competition and barriers to entry. Freedom of entry and exit would ensure no rents as if any player was gaining rents then other competitors would enter the niggle thus driving down prices. Therefore net-social profit would reach an optimum level, as would economic growth and efficiency. However, certain common phenomena such as economies of scale will a lways create the possibility for reduced equal structures and therefore a cost/price advantage for larger competitors who can resultantly monopolize markets and gain considerable rents. Although this is less prevalent in create countries such as India and China with massive fragmentation of their markets due to disparity of consumer demographic types between geographic regions, it is more prevalent in China than in India since China have an fierceness on mass payoff thus supporting our conclusion. Conversely, the existence of indispensable re audiences rents signals efficiency and therefore their maximation would optimize net social benefit. This is because increased use and hence depletion of natural resources (for example numbers of fish) would increase the difficulty and costs of tapping those resources. This would eventually reach a point where the cost is only exactly covered by the price due to the greater interest phenomena. Finally, rents based on transfers, in develo ped countries income from production is often lost through transfers, however, in developing countries these transfers can become the source of additional income and the basis for asset accumulation. As it is rarely the case that both parties in a transfer note value the item equally the social welfare effect of this would be typically positive.Schumpteranian rents are particularly salient as they regard the level of substructure within an economy, which has been pointed out by many scholars as a source of competitive advantage (Porter). Although cosmoss are economically beneficial they create rents for the enterpriser who has created a massive competitive advantage. The optimal social benefit can therefore be reached through most rapid competitor innovation imitation. This is what would put India ahead of China as India has been shown to be seven years ahead of China in its ability to imitate new technologies (Huang and Khanna, 2003), and this is resultantly the briny factor in the conclusion that can be made from the consultation of Khans economic rents analysis.This essay will now move on to have the advantages of investing in both countries. The two emerging economies do parcel out similarities which has lead to increased comparison, for example both have large markets of one billion plus, and both have achieved high levels of growth in a short amount of time. On the basis of economic determinants China does give out than India, but is this all that really matters? Chinas total and per capita GDP are higher and thus this makes it a more attractive location for market desire FDI. Alongside this China reports higher levels of literacy compared to India, and thus is viewed as being able to provide a more adept workforce and in cover this is attractive to efficiency seeking investors. However, there are advantages which cross between the two emerging economies. China has large natural resource endowments, in particular Chinas infrastructure makes it a more competitive place, particularly in richer parts of China on the coast. On the other hand, although China may have the advantage of natural resources and thus a greater electromotive force for net social beneit in terms of natural resources rents (Khan, 2000), India is able to have an advantage over technical manpower in particular, in its mean area of IT, India is able to provide the tackyest technically qualified manpower in the West however, a weakness arises in that India is yet to adopt a system of bulk production similar to China and therefore Chinas large domestic market with a system of mass production is attractive to multinationals.Compared to China, India has become known for its heterogeneity, it is diverse in culture, religions and diction. Although this may pose a problem for multinational firms, we now live in a world where firms are increasingly adapting to local environments and thus in club to be successful in the Indian market it is necessary to locally adapt. However saying this despite an emphasis on local culture many Indians are fluent in English and this greatly enables Indian firms to do business in the West, unlike many Chinese firms where often language barriers arise. The Indian market does hold great benefits to a firm willing to overcome any problems associated with heterogeneity and in particular, India could provide a niche market for international investors. As well as its highly skilled technological staff, India has a democratic political system and western demeanor financial systems. As noted in an article in economic and political weekly, Indias financial systems are more developed than China and this provides an advantage for firms investing in India over China. Indias ability to attract R and D centres, also provides India with the capability of absorbing industry know how quicker than China, India is promising to become more technologically superior as it continues to absorb education from firms investing. Chinas economy in its very nature requires high levels of FDI due to push intensive technologies and therefore is attracting knowledge along the lines of management styles.In order to assess the strength of India, one particular aspect of Dunnings eclectic picture has been applied (Dunning, 1981). It is clear that China is the worlds global factory with high levels of FDI and an emphasis on manufacturing. However, to show that perhaps FDI figures are not the only economic factor such a possibleness will be applied to show other factors need to be considered and how such factors relate to India. Dunning (1988) colligate three factors to FDI, location, ownership and internationalisation factors. This essay will look at the first location factors to assess how they apply to India, such a theory may provide further understanding as to why, even though India has attracted considerably less FDI than China it is in good stead to grapple and even overtake China in years to come. Dunnin g defined location-specific advantages as those advantages that a firm benefits from by choosing a particular location, as shown, India possesses communication facilities which enable it to effectively communicate with the rest of the world. In particular, many call centres are in India and thus many time constraints are being over come through 24hour international call centres. India is pioneering new technologies and it is shown to be 6-7 years ahead of China in terms of its superiority (Srinivasan, 2004). It is Indias IT sector which has outstripped China and the widespread of the English language has allowed Indian companies to deal with Hesperian companies. Secondly, Indian government policies are also allowing foreign firms to benefit from lower levels of corporate tax. Thirdly, infrastructure in India is good, particularly in areas which are considered applied science hubs, more specifically areas such as Bangalore in India which is often referred to as the Indian Silicon Valley, offer great location specific advantages. Bangalore, is an constitutional phenomenon (Huang and Khanna, 2003) and is based on knowledge, education, ambition and intangible assets. The advantage gained here comes from the niggardness of computer software and IT industries and arises from a network of firms which allows each firm to benefit from technological spillovers (Hill, 2009). This advantage is perhaps the most important advantage firms look to gain when investing in India.According to the BRICS study, the world economy is set to show dramatic changes over the next fifty years. If we look at the data from this study we can predict the future activities of China and India in order to further conclude the likely future of these two economies. In the study it was predicted that both India and China will overtake the likes of America, Japan and Germany in terms of GDP. Ultimately, the study shows that both India and China will be line players in the economy come 2050. M ore specifically, India is shown to have the most capableness to show the fastest growth over the next fifty years, more specifically it is predicted that as India is less reliant on exports it is less rude(a) to changes in the world economy and due to its organic progression many economists are tipping India to overtake China in the long run. What is particularly fire to note is that India is totaling a strategy of that seen in developed countries by investing in IT and services unlike most developing countries which follow Chinas strategy by offering a manufacturing base complete with cheap lug.In conclusion, the two emerging economies have very different strategies and this is reflected in the difference in their economic forecast. China has a strategy of labour intensive export led growth compared to India whom provides a more international niche, stepping away from the mass production market and moving towards providing a technologically superior nation focusing largely on IT and services. China has undergo great levels of growth and according to the predictions of the BRICS study is set to dominate the world economy by 2050. As it stands India is more technologically advanced Ultimately, however India holds great advantage over China as concluded in Khans analysis and referring to its developed private sector, stable democracy, and skilled workforce. As a final note as Huang and Khanna (2003 p.78) notes China may have won the race to be the worlds factorywith the help of its diaspora, India could become the worlds technology lab.