Economic Development of China and India - Case Study Example

Name Lecturer Task Date Economic growth is a crucial concept for determining whether a country is successful or not (Wohlmuth, 2009). The economic growth of a nation is dependent on the strategies and policies used. It is for this reason that policy changes occur when a country is undergoing recession. Different countries have different endowments. It is upon how a nation has designed its policies and strategies that it can achieve economic growth rate. Some countries such as China have seen unprecedented growth since 1980’s yet they are not endowed with natural resources like others basically due to well designed policies and strategies used. India is also a good example of a country that has achieved tremendous economic growth since 1980 although the rate cannot be compared to that of China. The two countries are perfect examples of emerging economies as a result of good policy framework and strategies. What has been quite inexplicable for most of the economists is on how countries need to adopt their policy framework and strategies. For example, Mahtaney (2010: 159) highlights the fact that the context and circumstances prevailing in a certain country should be considered when choosing policies and strategies for sustainable economic development. This essay will argue in support of this idea and arguments will be drawn from the two states which have seen remarkable economic development in the last two decades; China and India. Globalization and economic development are two common concepts that economists cannot miss to mention in any of their discussions. Similarly, one cannot miss to hear economists talk of emerging economies and sustainable development. Perhaps, a perfect way to get into the subject of this discussion is by defining these common concepts. As earlier stated, these are common terms therefore a number of definitions have emerged from various literature works. Needless to say, most of these definitions talk about the same concept. Globalization has been defined by many scholars in different ways. Lack of a precise definition has been argued to be the main factor spurring debates on the effects of globalization. According to Waller-Hunter & Jones (2002), globalization can be defined as “that process in which business decisions, production and markets displays more of international attributes and lesser of home of origin ones” (P. 53). In almost the same way, Hamilton, (2008) defines this term as the global integration of economic, technological, political, cultural and social characteristics between nations (P 10). There are many other scholars who have contributed in defining this concept but what is common for all of them is that their definitions are centered towards the idea of strengthening relations in terms of economic, technological, political, cultural and social aspects. It is therefore a multifaceted term affecting diverse sectors of a country’s economy either directly or ramblingly. According to Waller-Hunter & Jones (2002), globalization is a major contributing factor of a nation’s economic growth or development (p 53). Economic development on the other hand is the process by which an economy is translated from that of low per capita income to a self sustaining per capita income (Adelman, 1961: 1). Economic development is a determining factor of whether a society is underdeveloped, Countries vary in the way they achieve economic development. It can either be short term or long lasting. Countries which have achieved long lasting development are said to have sustainable development. Sustainable development is therefore a development that lasts (Waller-Hunter & Jones, 2002: 53). Importantly, societies should experience sustainable development in all realms; environmental, social and economic. Similarly, the rates at which nations achieve economic development also vary. Some countries such as China and India have had exemplary performance in terms of economic development for the last two decades and they are referred to as emerging economies. Countries experiencing fast growth or moving out of underdevelopment and there are experiencing a significant economic growth are termed as emerging economies (Tridico, 2007: 2). Therefore, they can also be termed as transitional economies basically because these reforms involve changes in their structures and institutions. Most of those countries within the group of emerging economies are instituting changes that allow their economies to be open to the rest of the world. Tridico (2007) argues that if there was a challenging task to economists is that of explaining how countries grow their wealth. Some countries experience fast economic growth despite having few endowments. In the same dimension, what has been puzzling economists are the instances where some nations are wealthy despite of having few individuals working whereas others are languishing in poverty yet all people are working. Several factors contribute to economic growth or development of different nations. Notably, a single factor cannot explain an immense economic growth. It is for this reason that some factors such as human capital have made other nations prosper economically while other countries with the same endowment fail to prosper. Besides human capital resources, there are other factors that have been identified to be the reason behind economic growth. They include natural resources, capital resources and technology (Tridico 2007: 6). These are the major groups of factors which are deemed to contribute to economic development. Different nations have grown economically by focusing on one or a number of these factors. However, one single factor may not result to economic development (Tridico 2007: 7). Comparing China and India prior to economic reforms, China had already developed her capital resources while India had a well developed human capital resource. After reforms, China’s manufacturing sector developed immensely to double that of India in the year 2005 while India’s service industry had tripled that of China in the year 2005 (Siraj, 2011: 64). This clearly indicates that a country can develop economically by just focusing on one of these factors. To prosper economically, good policy framework and strategy need to be instituted. Therefore, it can be argued that policies are also major contributors to economic development. Various nations have designed various policies. According to CIDA, stable economic growth is only possible when there is presence of transparent and properly implemented laws. This explains the reason why some countries fail despite having well designed laws. Policy reforms are dictated by the context and circumstances that are prevailing in a country at that period. Emerging economy nations such as China and India have exhibited a series of policy reforms for the last two decades. Since early 1980’s, India has had major economy policy changes. For example, in a view that policies which were initially used were ineffective in encouraging foreign direct investment, India initiated New Economic Policy in the year 1991 (Arora, 2012: 35). Besides this compelling factor, there were other factors as well that pushed India towards New Economic Policy. They include; growing fiscal deficit, unfavorable balance of payment, reduction in foreign reserves and rising prices of commodities (Arora, 2012: 36). It was this financial crisis that pushed India to borrow money from foreign banks to offset fiscal imbalances. This new policy was designed to involve three strategies; liberalization, globalization and privatization expected to bring back the country on to track (Arora, 2012: 36). Policy reforms were therefore dictated by the prevailing circumstance of a need to encourage foreign direct investment that can boost the economy. In the same manner, prior to reforms, China relied heavily on Agriculture for its economic development. Deng Xiapong who was by then the leader noted that it was indeed the only factor China could opt for to develop. As such, agriculture needed strong attention as it was the foundation of the economy (Tisdell, 2009: 276). It was through this that agricultural reforms were put in place. Agricultural reforms shifted the land ownership and control from community to household and increased foreign direct investment (Kau & Marsh, 1993: 10). Just like China did, countries need to look at their prevailing conditions and focus on policies which can boost a major factor of economic growth. This idea of focusing on what it can be done best also explains the failures of the Great Leap Forward period. According to Tisdell (2009), the policies of this period did not put into consideration the economic realities prevailing at that period such as local economic specialization according to the theory of comparative economic advantage. Many nations have failed through the use of policies which do not solve their prevailing issues. Similarly, nations have different endowments. Prior to economic reforms, China was endowed with capital resources while India was endowed with human resources. In the same manner, different nations have different endowments. When policies are being formulated, it is important for policy makers to consider if they will bring sustainable growth to the nation. Sustainable growth is dependent on the amount of resources that are available in a country. It is also crucial to note that the amount of available resources needed for economic development will depend on the context of the country and circumstances facing the country at a particular time (Ames et al., 2001). Some countries may have heavy external debt burden. Some policies of economic development that are introduced at a certain time may lead to a heavy burden to the government. Policy reforms also need to consider the context and circumstances prevailing owing to the fact that different nations are at different stages of development. Policy makers therefore ought to focus on those reforms which are capable of increasing the momentum of development. Policies required to turn around an economy are different from those required to increase economic growth. For example, poor nations may require putting in place policies allowing for the development of human capital which is a crucial factor to economic development. Tisdell (2009) highlights the fact that economic growth in developed economies is dependent on technology and improvement in human capital (P 280). Therefore the level of economic development should be factored in when designing these policies. In conclusion, policies and strategies are determined by the context and circumstances prevalent in a nation. Nations should borrow ideas from China and India which have had exemplary performance in economic growth. Prior to economic reforms, an analysis was conducted by Chinese reformers to assess what could bring economic development without bringing burden to the country. They were able to improve agriculture which was the best option at that time through mechanization and develop economically. Of great importance is to note that these countries regarded as emerging economies are among the densely populated in the world. A country can therefore develop irrespective of having a high population density. What is important for economic growth are the policies set to fuel it. In addition to this, these policies should aim at addressing a major factor impeding economic development in particular sectors and also allow citizens to shift into new as well as existent opportunity areas (Ames et al., 2001). China offers a good example of this, where people were allowed to own land which was initially communally owned thus increasing production. References Adelman, I. (1961). Theories of Economic Growth and Development. California: Stanford University Press. Ames, B., Brown, W., Devarajan, S. & Izquierdo, A. (2001). Macroeconomic Policy and Poverty . World Bank. Retrieved from Arora. (2012). Indian Economic Development for Class Xi. New Delhi: Tata McGraw-Hill Education. Canadian International Development Agency (CIDA). Stimulating Sustainable Economic Growth: CIDA’s Sustainable Economic Growth Strategy. CIDA. Hamilton, S. M. (2008). Globalization. Edina, Minnesota: ABDO. Kau, M. Y. & Marsh, S. H. (1993).China in the Era of Deng Xiaoping: A Decade of Reform. M.E. Sharpe. Siraj, M. (2011). China and India: A Comparative Analysis of their Integration into the Global Economy. Real-World Economics Review, 57: 60-70. Tisdell, C. (2009). Economic Reform and Openness in China: China’s Development Policies in the Last 30 years. Economic Analysis & Policy, 39(2): 271-294. Tridico, P. (2007). The Determinants of Economic Growth in Emerging Economies: A Comparative Analysis. Working paper No 75. Waller-Hunter, J & Jones, T. (2002). Globalization and Sustainable Development. International Review for Environmental Strategies, 3(1): 53-62. Wohlmuth, K. (2009). New Growth and Poverty Alleviation Strategies for Africa: Institutional Local Perspectives. 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