Perspectives on China and India: Introduction

November 12, 2012

Cletus Coughlin gives an overview of economic development across the centuries in the world's two most populous countries: China and India.

Presentation (PDF)


Cletus Coughlin: Okay. Now, let's get on with the show. Tonight's focus is upon the two economies with the largest populations in the world. In other words, we're talking about China, which has roughly 19 percent of the world's population, and we're talking about India, a much smaller land mass, with roughly 17 percent of the world's population. And as part of tonight's programs, what we're going to do is to have a special presentation on what's been going on in India and what's been going on in China. And in addition, we're going to couch often times this in the context of their interactions with the United States. Well, the United States turns out to be the third most populous country in the world with roughly 4 1/2 percent of the world's population. So given those numbers, you can see that China is more than four times in terms of the population of the United States while India is slightly less than four times the population of the United States.

Now, what we've seen during the last 30 years in both China and India are major economic changes that have led to major developments not only within their countries in terms of their economic growth, but also in terms of their, I'll call it footprint, vis-à-vis the rest of the world and, of course, versus with respect to the United States which is what many of us are most interested in.

Now, let me show you one indicator of the extent to these changes in the last 30 years. This is a look at shares of world GDP from 1980 onwards. In other words, down here is starting in 1980 and going up through 2008. The blue is the United States' share, the red is China, India is this kind of light green, and all other countries are the purple. Now, obviously there's a whole bunch of activity with respect to all those other countries as well, but we're just going to focus on this. Now, during this period from 1980 to 2008 it's important to remember that economic activity, the amount of gross domestic product, the amount of incomes in all three of these countries that we're looking at have increased. In other words, their economic pies have increased. The world GDP has increased quite dramatically from 1980 to 2008.

But what we're looking at here is how that share has changed. And for the United States that share has gone from roughly 21 percent to 19 percent, so that the U.S. share of world GDP—even though the United States is growing—has declined slightly. Now, with respect to China which has had the most dramatic change, they've gone from roughly 5 percent of world GDP to 17 percent, more than a tripling of their size. Meanwhile, India which is kind of hard to see in terms of the how this has changed, but it's changed from roughly 3 percent of the world's GDP to 7 percent so that their share has more than doubled. Okay?

Now, you might ask, well, what does another percent mean? In other words, in the context of the world GDP today, what does a percentage point mean. Well, it means about $700 billion. Now, what that means in the context of the United States with roughly—and I picked these numbers so I can do the math in my head—350 million. So what that means is if the United States were to have a 1 percentage point increase in GDP in terms of their share, that would translate into roughly $2,000 per person in the United States. Of us 350 million, each would get roughly another $2,000.

Now, in the—woops—in the context—they must not have detected any intellectual motion or anything from me, and they decided to shut it off. In the context of China and India, that 700 billion, of course, is spread out over much larger populations, but it still translates into roughly—and I'm picking easy numbers—roughly $500 per person in each of those countries. Now, given that their per capita incomes are much lower than what the United States is, that's a tremendous increase. A 1-percentage-point change is a tremendous increase in their incomes and allows a significant movement of people out of poverty into a reasonable standard of living in those countries.

Now, our focus tonight is on the emergence of these countries. Let me take you back 500 years. Okay? So before most of us were born. So this is the same type of chart. Now, admittedly the income numbers and stuff, if you go back to 1500, we didn't have a whole lot of statisticians recording these numbers for each and every country throughout the world and stuff like that. So these are estimates that are fraught with a whole bunch of difficulties. But nonetheless, if we go back to 1500 and if we look at obviously the United States, you know, 1492 or something rings a bell in my mind for something that went on. But anyway, we had virtually no economic activity taking place in the proper of the United States. But if we look at China and India, they were the two giants at that time, primarily because of their populations, but they had roughly 25 percent, each of them, of the world's GDP at that time.

And so then as we moved on during this period, we eventually—and economic historians have a lot to say about this—but one of the key things that took place here in the 1800s and on was the industrial revolution. And in that case then, the United States as well as some other countries in Europe took off and saw significant increases in incomes and their shares. And so that's what we see the tremendous increase in the U.S. share during that time. But basically for China and India, they were left behind in that. So in essence we could have titled this the re-emergence, if we wanted to, of China and India.

Now, what I'd like to kind of finish with is a suggestion that, you know, what we're going to hear tonight are significant developments that are taking place internally within China and India but also the developments. And so there have been a whole series of reforms in terms of the types of economic activity that are allowed licensing agreements and what you have to do and mobility that's allowed within the countries and so on, a whole number of changes as well as a whole series of changes with respect to their international relations. In other words, their relations with respect to international trade or with respect to foreign investment or with respect to the movements of technology or with respect to the movements of people such as those two guys that are going to be talking tonight. And we're going to benefit tonight from their expertise.

So let me say a few things in way of introduction of our first speaker tonight, YiLi Chien. Keeping with the theme of tonight's dialogue, I would view him as an emerging distinguished scholar. He is a senior economist in the Research division here at the Bank, and actually formally accepted the job offer earlier this year. Previously he was a professor at Purdue University. And his research focuses on obviously macroeconomics, also household finance and asset price in asymmetric information and dynamic contracting. I don't think we'll have a whole lot of discussion about dynamic contracting tonight. And if we do, I'll be as lost as you are probably. He has a PhD in economics from UCLA, and received his master's degree in economics from National Taiwan University. And he has a bachelor's in economics from National Tsing Hua University also in Taiwan. So without further ado, I'll turn it over to YiLi.

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