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Innovation china india_sep.07_sean_dougherty

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  • 1. China and India’sInnovative PotentialThe Dragon and the ElephantNational Academy of SciencesWashington, DCSeptember 24-25, 2007Sean Dougherty, Senior EconomistOECD Economics Department
  • 2. 2 Overview• Growth – Potential and sources – R&D capacity• Productivity – Drivers• Regulatory reforms – Product markets – Labour markets – The future
  • 3. 3 India’s growth breakdown Per capita GDP growth (per cent / annum)+6.0+5.0 3.9 4.8+4.0 +1.8 2.7+3.0 +2.4 +1.8+2.0 +2.0 1.3+1.0 +0.5 +1.0 +1.9 +0.8 +0.8+0.0 +0.1 +0.6 +0.1 -0.1 -0.6 +0.2 -0.7-1.0 1950-1979 1980-1989 1990-1999 2000-2005-2.0 Participation Demographics Capital intensity TFP
  • 4. 4 China’s growth breakdown Per capita GDP growth (per cent / annum)+10.0 9.1 8.7 8.1 +8.0 +4.4 +2.5 +3.7 +6.0 +4.0 3.5 +0.3 +3.0 +5.1 +4.8 +2.0 +2.6 +0.0 +1.8 +0.1 +0.5 +0.9 +0.0 -0.3 -0.1 -0.5 -2.0 1950-1979 1980-1989 1990-1999 2000-2005 Participation Demographics Capital intensity TFP
  • 5. 5 Growth in China vs. India (2000-05) Per capita GDP growth (per cent / annum)+10.0 8.1 +8.0 +2.5 +6.0 4.8 +4.0 +1.8 +5.1 +2.0 +2.0 +0.9 +0.8 +0.0 -0.5 +0.2 China India -2.0 Participation Demographics Capital intensity TFP
  • 6. 6 R&D expenditure risingAnnual growth 1995-2004 Expenditure Researchers 20 15 10 5 0 -5 R&D intensity: 2.3% <1.0% 1.4% -10
  • 7. 7 Research outputs growing Science articles Articles published in (per million people) High-impact journals 450 India China India 400 350 China 300 250 Brazil 200 150ChineseTaipei 100 50 Korea 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 0 200 400 600 800
  • 8. 8 Rising productivity allows Unit labour costs to remain low Year 2002 Index (Germany=100)100 90 80 70 60 50 40 30 20 10 0 INDIA CHINA Turkey Hungary Korea Poland Mexico Germany
  • 9. 9 …but India needs larger scale firms Level of productivity120%100% 80% 60% 40% 20% 0% 1-10 10-20 20-50 50-100 100-250 250+ Size of employment
  • 10. 10 …and China more private control Level of productivity 140% 121% 116%Relative level of productivity 120% 108% 100% 100% 92% 80% 70% 60% 46% 40% 20% 0.0% 0% Direct Indirect Indirect Collective Private, Private, Private, Private, state state, LP state, control LP individual non- other control other mainland
  • 11. 11 China is restructuring rapidlyIncreasing regional specialization0.390.37 India0.35 China0.330.310.290.27 1999 2000 2001 2002 2003 2004
  • 12. 12 India’s product markets … Increasing product market regulation (restrictiveness) UK US OECD Ireland New … average Canada Japan Germany Korea Spain France Czech R. Greece Italy Brazil Hungary Mexico Chile Turkey Poland INDIA 0 1 2 3
  • 13. 13 …and labour markets are restrictive Increasing employment protection (Regular contracts) US UK Canada Brazil OECD Denmark Ireland average Italy Hungary Poland CHINA Mexico Chile EU 15 Korea Greece Japan France Slovak Republic Turkey Germany Sweden Spain INDIA Czech Republic Portugal 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
  • 14. 14 Deregulation in Indian states is making labour markets more flexible 60 Madhya Pradesh 55 Orissa R² = 0.37 50Gross job turnover Himachal Gujarat 45 Pradesh Rajasthan Uttar Pradesh 40 Uttaranchal Haryana Maharashtra Punjab Bihar Andhra Pradesh 35 Kerala Karnataka 30 Jharkhand Delhi Chattisgarh Tamil Nadu 25 West Bengal Assam 20 20 25 30 35 40 45 50 55 60 Labour rule reform index
  • 15. 15 Financial markets are more Developed in India Stock market valuation as a share of GDPChina - freely tradable China Indonesia Philippines Germany Korea Thailand Japan India U.K. United States Chinese Taipei Malaysia Singapore 0 50 100 150 200 250
  • 16. 16 Educational outcomes are now improving in India, approaching China’s Literacy rate by age group 100 90 80 70 60 50 40 30 20 10 0 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60 + National Urban Male Rural Female
  • 17. 17 The future looks bright for both economies Estimated GDP growth rates 11 10.5 10 9.5 9 8.5 8 7.5 7 6.5 6 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 India (+5%) China (45%) India (+10%) China (35%) Note: Investment rate or change shown in parenthesis. See Herd and Dougherty (2007) in the European Journal of Comparative Economics.
  • 18. 18 Forthcoming OECD Publications• OECD Economic Survey of India (Oct ’07)• OECD Innovation Review of China (end-07)Also available:OECD Economic Survey of China (2005)OECD Science & Technology Outlook (2007)

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