Trade, Infrastructure and Regional Disparity in India and China

Prabir De, RISFourth International Russia-India-China

Annual Conference, New Delhi 20-21 November 2008

Introduction Removal of trade barriers has impact on industrial dynamics,

depending on the factor intensities of the industries. More trade engagement leads to reorientation of factors of

production from import competing sector to export sector [return is comparatively higher]

States / provinces attune their production structure to international demands, earn higher than other states, depending on infrastructure availability and quality.

Relative income of states depends on the extent of openness to trade and availability of infrastructure [economic + social].

For geographically large developing countries like India and China having disparate regions, it is essential to understand whether trade and infrastructure development have equalizing impact or not.

Almost no literature on India and China on the relationship between trade openness, infrastructure and regional disparity at sub-national level. Some recent works: Egger et al, (2005) – Europe; Tapalova (2005), De and Ghosh (2005), Marjit et al (2007) – India; Fang and Yang (2000), Yu and Gang (2004), Demurger, et al (2002), Xiaolu and Gang (2004) - China

Research objective

How open Indian and Chinese states are with respect to international trade

How the Indian and Chinese states are doing in infrastructure sector

What the regional disparity scenario is in context of trade and infrastructure in India and China at sub-national level

Broad data outline and sources Sub-national samples: 31

Chinese provinces and 29 Indian states

Period: 2000 to 2005 for India; 2000 to 2006 for China

Income: GSDP in US$ at current price

Openness: Trade as % of GSDP for China, and Marjit et al (2007) for India.

Infrastructure Development Index (IDI), constructed based on PCA

State-level India China

Infrastructure indicators [28 indicators]

India Infrastructure Database (Vol. I + Vol. II), (Ghosh and De, 2005)Statistical Abstract, various issues (CSO)

China Compendium of Statistics, 2005 (National Bureau of Statistics) China Statistical Yearbook, various issues (National Bureau of Statistics) NERI Index of Marketization for China’s Provinces (Fan, Wang and Zhu, 2007)

Income, Trade, FDI and others

CSO, DIPP, Marjit, Kar and Maiti (2007), based on DGCIS, NSSO

Coastal states are relatively richer

PCI (US$) Rank

Shanghai 8623 1 Coastal

Beijing 7529 2 Capital

Tianjin 5954 3 Coastal

Zhejiang 4879 4 Coastal

Jiangsu 4438 5 Coastal

Guangdong 4324 6 Costal

Shandong 3644 7 Coastal

Fujian 3395 8 Costal

Liaoning 3371 9 Costal

Hebei 2595 10Non-coastal

Top 10 Chinese Provinces in PCI, 2006

PCI (US$) Rank

Goa 1590 1 Coastal

Delhi 1399 2

NCRHaryana 881 3

Maharashtra 841 4 Coastal

Punjab 792 5Non-

coastal

Gujarat 775 6 Coastal

Himachal 767 7Non-

coastal

Kerala 695 8 Coastal

Tamil Nadu 679 9 Coastal

Karnataka 619 10 Coastal

Top 10 Indian States in PCI, 2006

*PCGSDP in US$ at current price *PCNSDP in US$ at current price

Laggards are non-coastal

PCI (US$) Rank

Hainan 1903 22 Coastal

Qinghai 1867 23 Non-coastal

Sichuan 1699 24 Non-coastal

Jiangxi 1655 25 Non-coastal

Guangxi 1642 26 Non-coastal

Tibet 1583 27 Non-coastal

Anhui 1582 28 Non-coastal

Yunnan 1381 29 Non-coastal

Gansu 1357 30 Non-coastal

Guizhou 958 31 Non-coastal

Bottom 10 Chinese Provinces in PCI, 2006

PCI (US$) Rank

Manipur 461 20Non-

coastal

Chattisgarh 457 21Non-

coastal

Jharkhand 432 22Non-

coastal

Jammu & Kashmir 422 23

Non-coastal

Assam 422 24Non-

coastal

Rajasthan 405 25Non-

coastal

Orissa 392 26 Coastal

Madhya Pradesh 355 27Non-

coastal

Uttar Pradesh 301 28Non-

coastal

Bihar 179 29Non-

coastal

Bottom 10 Indian States in PCI, 2006

*PCGSDP in US$ at current price *PCNSDP in US$ at current price

0.360.36

0.39

0.360.36

0.37

0.37

0.370.370.37

0.370.36

0.38

0.390.39

0.40

0.410.41

0.35

0.36

0.37

0.38

0.39

0.40

0.41

0.42

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

CV

0.95

00.

945 0.85

80.

784

0.84

20.

740

0.70

3

0.68

7

0.69

5

0.71

1

0.68

0

0.70

2

0.70

3

0.69

5

0.68

6

0.65

2

0.63

10.

612

0.00

0.40

0.80

1.20

1990

1992

1994

1996

1998

2000

2002

2004

2006

CV

Income per capita – divergent view

Chinese provinces

Notes: PCGSDP in US$ at current price

Indian states

Coefficient of Variation (CV) of Per Capita Income

Notes: PCNSDP in US$ at current price

Falling disparity

Rising disparity

Coastal Chinese provinces having higher openness, 2006

ProvinceOpenness

(%) Rank

Shanghai 174.93 1

Guangdong 160.35 2

Beijing 160.18 3

Tianjin 117.90 4

Jiangsu 104.57 5

Zhejiang 70.45 6

Fujian 65.59 7

Liaoning 41.69 8

Shandong 34.37 9

Hainan 21.54 10

Top 10 Provinces

ProvinceOpenness

(%) Rank

Guangxi 11.00 22

Jiangxi 10.57 23

Inner Mongolia 9.91 24

Shaanxi 9.45 25

Tibet 8.99 26

Sichuan 8.70 27

Qinghai 8.10 28

Hunan 7.74 29

Henan 6.29 30

Guizhou 5.65 31

Bottom 10 Provinces

Eastern coastal provinces Non-coastal provinces

Unchanging ranks of provinces on openness: Avg. rank correlation 0.967 (2000 – 2006)

6.29

Tianjin

Beijing

Shanghai

Fujian

Jiangsu GuangdonZhejiang

ShandongLiaoning

y = 27.574x + 1261.5R2 = 0.8392

0

1000

2000

3000

4000

5000

6000

7000

8000

0.00 50.00 100.00 150.00 200.00

Openness (% ), 2006

PC

I (U

S$

), 2

00

6

Rising inter-regional disparity in openness in Chinese provinces Provinces with higher

export share (mostly coastal) are relatively richer Production structures

are attuned to international demand [also having higher import content]

Higher openness leads to higher income

Rise in inter-regional disparity in terms of openness during 2000-2007 CV increased from 1.26

in 2000 to 1.28 in 2006

31.16

16.55

11.7210.41

6.054.26 3.92 3.46 2.92

1.33

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Gu

an

gd

on

g

Jia

ng

su

Sh

an

gh

ai

Zh

ejia

ng

Sh

an

do

ng

Fu

jian

Be

ijin

g

Tia

njin

Lia

on

ing

He

be

i

%Provinces with >1% export share, 2006

Rising inter-regional disparity in openness in Indian states

Score Rank

Assam 11.94 1

Haryana 10.89 2

Bihar 10.56 3

AP 10.45 4

Kerala 9.78 5

Maharastra 9.61 6

Gujarat 9.34 7

Karnataka 8.77 8

UP 8.77 8

MP 7.24 10

Orissa 6.70 11

Rajasthan 6.62 12

WB 5.64 13

Punjab 4.77 14

TN 4.18 15

Avg. Openness Index, (1999-2000 - 2004-05)

*Methodology follows Marjit et al (2007)

Rise in inter-regional disparity in openness in India.

OrissaRajasthan

Kerela

KarnatakaWest Bengal

Tamil Nadu

Punjab Gujarat

MaharashtraHaryana

Andhra Pradesh

Madhya PradeshUttar Pradesh

Assam

Bihar

0

100

200

300

400

500

600

700

800

900

1000

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

Openness (%)

PCI (

US$

)

Coastal states having higher infrastructure endowment

States IDI Rank

Delhi 50.28 1 Capital

Goa 21.04 2 Coastal

Punjab 20.54 3Non-coastal

Haryana 16.62 4 NCR

Kerala 16.52 5 Coastal

Tamil Nadu 16.2 6 Coastal

Gujarat 16.02 7 Coastal

Karnataka 15.7 8 Coastal

Maharashtra 14.64 9 Coastal

Andhra Pradesh 13.58 10 Coastal

Top 10 States in India, 2004

States IDI Rank

Shanghai 6.64 1 Coastal

Beijing 6.27 2 Capital

Tianjin 5.96 3 Coastal

Guangdong 5.23 4 Coastal

Zhejiang 5.16 5 Coastal

Jiangsu 5.04 6 Coastal

Liaoning 4.76 7 Coastal

Shandong 4.71 8 Coastal

Fujian 4.66 9 Coastal

Hebei 4.46 10 NCR

Top 10 States in China, 2005

States with higher infrastructure earning higher income

Indian states Chinese provinces

Coastal states, with higher infrastructure endowment and higher openness, earning higher income

Shanghai

Beijing

Tianjin

Tibet

Guizhou

Guangdong

Zhejiang

y = 1897.3x - 5295.6R2 = 0.8756

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0 1 2 3 4 5 6 7

IDI

PCI

Delhi

Goa

Bihar

UP

Punjab

MaharashtraHarayana

HP TN

y = 26.271x + 267.84R2 = 0.5346

0

200

400

600

800

1000

1200

1400

1600

1800

0 10 20 30 40 50 60

IDI

PCI

Openness, infrastructure and income: India and China

9 .273 10.545 11.818 13.091 14.364 15.636 16.909 18.182 19.455 20.727 above

India

1667.217 2500.495 3333.773 4167.05 5000.33 5833.61 6666.887 7500.165 8333.443 9166.72 above

C hina

X: InfrastructureY: OpennessZ: Per Capita Income

Year: 2005 for India (15 states)Year: 2006 for China (31 provinces)

Conclusions Sub-national level data shows rise in income disparity in India

whereas China shows fall in income disparity China’s export-led globalization benefits coastal states. Same is

appearing in India Explicit shift in production dynamics attuning with global demand

[import competing to export sector] in Chinese provinces. India repeats the same, but in initial stage

States richer in openness and infrastructure [obviously coastal] having higher income

Coastal states growing faster than non-coastal states in India. China shows a mixed result.

Gap between coastal and non-coastal rising in terms of openness, infrastructure, and income.

Trade and infrastructure development yet to have equalizing impact.

Globalization making an uneven development of India and China [short term], ceteris paribus.

Policy should be reoriented for the growth and development of “outer periphery” of the economy, such as border regions, non-coastal states, etc.

Diverse, heterogeneous,.…......, growing high, …..rising interregional disparity….

Thank you