Economic Letter—Insights from the Federal Reserve Bank of Dallas

Provides timely commentary on the important trends and policy issues shaping our rapidly globalizing, increasingly interconnected economy. Published monthly.

China and India: Two Paths to Economic Power
by W. Michael Cox and Richard Alm

For decades, China and India plodded along under ideologies that favored the visible hand of government over the invisible hand of markets. Their economic systems stifled growth and left both countries poor. In 1980, real per capita income stood at $556 in China and $917 in India.

To jump-start their economies, China and India shifted strategies, letting private enterprise flourish and opening markets to trade and investment. The new policies have led to rapid economic development. China’s real per capita income has grown an average of 8.4 percent a year since 1995, climbing to $4,766. India’s 5 percent average annual growth has raised per capita income to $2,534.

Both China and India have unleashed pent-up economic energy, but they’re not traveling the same development path. China has followed the traditional route, becoming a center for low-wage manufacturing and exporting clothing, toys, electronics and other goods. India has emphasized services, using its large English-speaking labor force for call centers, data-processing operations and the like.

Growth rates give China’s goods-dominated strategy the better track record so far. But India’s approach may pay off better longer term. A look at per capita incomes around the world shows that the wealth of nations eventually depends more on services than industry. ...

Download Economic Letter, August 2008

PDF format, 668KB, 8Pages.

Vol. 3, No. 8. AUGUST 2008

The two Asian giants have achieved rapid and sustained growth— China by focusing on goods, India by tilting toward services.

Read Economic Letter, August 2008 Online

About the Authors:

Cox is senior vice president and chief economist of the Federal Reserve Bank of Dallas and Alm is senior economics writer in the Bank’s Research Department.

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