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Explaining the Productivity Growth Gap Between China and India: The Role of Structural Transformation
Author(s) -
Liu Hehe,
Yang Tianyu
Publication year - 2015
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/deve.12071
Subject(s) - productivity , economics , labour economics , macroeconomics
C hinese and I ndian aggregate productivity growth has been significantly different over the last 30 years. This paper studies the role of structural transformation in accounting for the aggregate productivity growth gap between two economies. We calibrate a neoclassical model of structural transformation for C hina and I ndia. The model implies that higher productivity growth in C hina's manufacturing and agriculture accounts for most of the aggregate productivity growth gap between the two countries. According to the development strategy of C hina's government, C hina would start a new phase of structural transformation whereby employment is moving from manufacturing to services. Since the productivity growth gap in services is pretty small between C hina and I ndia, if C hina wants to remain superior in relative productivity, it should improve the productivity growth rate of services. In contrast, the relative performance in I ndia hinges on closing its productivity gap in agriculture and manufacturing relative to C hina.