China’s and India’s Implications for the World Economy by Helmut Reisen, OECD Development Centre. 1. China and India Growth contribution to global growth sources & structure China’s raw material hunger impact of slowdown 2. The Global Labour Pool Has Doubled: Lower Wages, Fatter Profits
1. China and India Growth
2. The Global Labour Pool Has Doubled: Lower Wages, Fatter Profits
3. Price and Wage Effects: The Large-Country Case
Table 1: China and India’s Contribution to Global Growth, 2000-2004
Percentage share of annual growth rate
Source: IMF, World Economic Outlook, April 2005
N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP.
Each year since 2001, their combined contribution to global output growth has been around 30 per cent.
Helped to hold global output growth above the 4 per cent threshold which is critical for improving the terms of trade for primary commodity producers.
Formula to compute a country’s contribution to world growth:
China’s (India’s) growth rate times China’s (India’s) percentage share in world output divided by the sum of China’s growth rate plus the growth rate of the rest of the world, each weighted by their respective share in world output.
Table 2: Sources of China’s Income and Output Growth, 1998-2003
Source: OECD (2005)
Year-on-year growth rates (per cent)
Sources: China Statistical Yearbook (2004), International Energy Agency Data Service, Steel Statistical Yearbook (2004), International Iron and Steel Institute
Table 4: Selected Key Country Elements
Source: Reisen, Grandes and Pinaud (2004).
Figure 1: China’s Hard vs Soft Landing
Each country is represented by a horizontal line segment, with the length indicating the country’s share in world population (or labour force).
Figure 2: The Global Labour Pool and Real Per Capita Incomes, 1980 and 2000
Source: E. Leamer and P.K. Schott (2005), “The Rich (and Poor) Keep Getting Richer”’Harvard Business Review, Vol. 83(4), April.
Figure 3: The Lewis Model
In figure 3, labour is available at wage w^ up to L*. As the value of the marginal product of labour in the modern sector exceeds the wage rate, profits are high (shaded area). They are reinvested, raising the demand for labour in the modern sector so that the marginal product of labour curve is shifted to the right from VMPL0 to VMPL1. The model allows us to pose the crucial question now: When and how does the absorption of surplus labour come to a halt? Essentially, there are two possibilities.
Or in China and India, however, the expansion into the modern sector will eventually start to exhaust the supply of labour, and the effective labour supply curve turns positively sloped.
 Paul Krugman (1994), “Does Third World Growth Hurt First World Prosperity?”, www.pkarchive.org.
Figure 5: China and Stolper-Samuelson in a Lerner-Pearce Diagram
Figure 6 Shares in world imports of selected primary commodities, China and India, 1998 and 2003
Source: UN Comtrade database
Trade theory usually works with the small-country assumption: a country that engages in international trade faces given prices. But China (and for precious stones, India) has monopsony power in some raw material markets – its demand raises prices.
Table 5: China and India’s contribution to growth of world imports of selected commodities, 1998 - 2003
Sources: IEA database and UN Comtrade
Figure 7: Annual percentage change in commodity import prices, 1994-2004
-US$ per Kg-
Source: UN Comtrade
No wonder: prices have been rising since 2001.
Prima facie, this is good for raw material producers.
Note: * Standard deviation of annual percentage changes
Source: Own calculations based on UN Comtrade data
Figure 8: Declining World Manufacturing Export Price, 1986 – 2000
Source: Kaplinsky (2005)
price of exports in the current period
quantity of exports in the base period
price of exports in the base period
price of imports in the current period
quantity of imports in the base period
price of imports in the base period
Bhagwati J. N. (1958), “Immiserizing Growth: A Geometrical Note”, Review of Economic Studies, No. 3, pp. 201-5.
Bhagwati, J. N. (1987), “Immiserizing Growth”, in The New Palgrave: A Dictionary of Economics, (J. Eatwell, M. Milgate and P. Newman, eds.), London: Macmillan .
Source: UNCTAD (2005), Handbook of Statistics
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