New patterns of development and the new development

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New patterns of development and the new
development miracles
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Defining the success of India and China

• High and sustained rates of growth of aggregate
  and per capita national income
• Occurs in the context of integration through
  trade, investment and financial liberalization
• Also in a context of changing patterns of growth
  in the global economy.

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A new international context in manufacturing

• High-technology manufacturing industries are key
  contributors to economic growth in the United
  States and around the world
• The global market for high-technology goods is
  growing faster than that for other manufactured
  goods.
• Over close to a quarter of a century (19802003),
  world (real) output in high-technology
  manufacturing industries grew at an average
  annual rate of 6.4, whereas output by other
  manufacturing industries grew at just 2.4.

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Chinas emerging presence

• Throughout the 1990s and continuing through 2003,
  U.S. industry supplied 1214 of the worlds
  general manufacturing exports. By comparison,
  during the 1990s, U.S. high-technology industries
  accounted for 1923 of world high-technology
  industry exports
• However, gradual drop in the U.S. share partly
  due to competition from emerging high-technology
  industries in newly industrialized and
  industrializing economies, especially in Asia.
• China stands out, with its share of global
  high-technology industry exports reaching 7 in
  2003, up considerably from slightly more than 1
  in 1990.

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A new international context in services

• Knowledge-intensive service industries are key
  contributors to service-sector growth around the
  world
• Global sales in knowledge-intensive service
  industries rose consistently during the same
  period and exceeded 14 trillion in 2003.
• Business services, which includes computer and
  data processing and research and engineering
  services, is the largest of the five service
  industries, accounting for 35 of global
  knowledge-intensive revenues in 2003.

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India a successful player

• The United States was the leading provider of
  knowledge intensive services, responsible for
  about one-third of world revenue totals during
  the 24-year period examined.
• US exports of business, professional and
  technical services rose from 43.9 billion to 77
  billion between 1997 and 2004. But US imports
  also rose during this period from 20.8 billion
  to 40.7 billion
• Indias presence in this area has been
  significant and rising.

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Questions

• Are India and China successfully exploiting
  aspects of the changed pattern of global growth?
• Does this provide the trajectory for growth
  miracles in the current conjuncture?
• What are the implications of that trajectory?

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India and China Relative to the World
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Obvious Importance of Trade
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Difference 1 Trade structure
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Difference 2 Growth structure

• Of the cumulative increase in GDP between 1990
  and 2004, while 55 per cent was accounted for by
  manufacturing in the case of China, as much as 60
  per cent was accounted for by services in the
  Indian case.
• In India, while services accounted for 43 and 48
  per cent respectively of the increment of GDP at
  current prices in the 1970s and 1980s, the figure
  rose to 58 per cent and 62 per cent respectively
  during the 1990s and the years 2000-01 to
  2004-05.

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Difference 3 Current Account
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Difference 3 Current account
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A new pattern involving the new economy

• Idea that India and China are exploiting the
  benefits of the new knowledge economy.
• Improvement in the quality of human and other
  forms of intangible capital rendered possible
  by the knowledge revolution a crucial determinant
  of productivity differentials across sectors and
  nations.
• Transmission of these intangibles from the pure
  knowledge domain to commodities must be mediated
  by labour of different kinds which must acquire
  the necessary intangibles
• Requires investment geared to the production and
  dissemination of knowledge (i.e., in training,
  education, RD, information and coordination).

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Role of Knowledge 1
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Role of Knowledge 2
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Trends in services production
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India an exported of knowledge-intensive services

• IT and ITeS Exports from India
• IT services exports estimated at around 23
  billion in 2005-06 by RBI
• During the period 1990-91 to 2004-05, exports
  have been growing at 47.5 per cent per annum or
  doubling every 21 months.

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IT-based Growth in India

• In absolute and relative terms the size of the IT
  sector in India is now impressive.
• NASSCOM estimates the size of the industry in
  2005-06 at 36.3 billion, of which 29.5 billion
  consisted of revenues from software and services.
  23. 4 billion of these were export revenues
  comprising of 17.1 billion of software and
  services export revenues and 6.3 billion of
  revenues from exports of IT-enabled services and
  business process outsourcing (BPO).
• The ratio of gross IT sector output to GDP rose
  from 0.38 in 1991-92 to 1.88 in 1999-00 and 4.5
  2004-05

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Dissociation of knowledge and production

• Knowledge in production separate from knowledge
  for production.
• Knowledge in services separate from knowledge for
  services.

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K4P Domestic RD
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Retaining K4P Absorbing talent
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Retaining K4P Retaining talent
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Retaining K4P Global RD

• Transnational corporations (TNCs) account for at
  least 70 of global business RD. In 2002, the
  top 700 RD spenders reported RD expenditures of
  more than 300 billion (WIR 2005).
• Ford, Pfizer, DaimlerChrysler, Siemens, Toyota
  and General Motors each spent more than 5
  billion on RD in 2003. In comparison, among the
  developing economies, total RD spending exceeded
  5 billion only in Brazil, China, the Republic of
  Korea and Taiwan Province of China.

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Retaining K4P Internationalizing RD

• A rising share of these companies' RD
  expenditures are undertaken in developing
  countries. Between 1994 and 2002, the
  developing-country share of all overseas RD by
  US TNCs increased from 7.5 to 13. Today, more
  than half of the world's top RD spenders conduct
  RD activities in China, India or Singapore.

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Role for foreign firms in India and China

• Chinas trade surplus with the US rose to 114.2
  billion in 2005, up from 80.2 billion in 2004.
  Exports to the US rose by over 30 per cent to
  162.9 billion and imports totaled 48.7 billion.
  But dominant share of exports from foreign
  invested firms.
• More than 60 per cent of Indias IT services
  exports are to the US. But more than 50 per cent
  of ITeS exports from captive units.

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Increase in US Presence in Asia

• In Asia and Pacific, value added of foreign
  affiliates in 19992004 grew at an average annual
  rate of 9 percent, and the regions share
  increased 1.2 percentage points, to 19.0 percent.
• The largest increases in shares were in China,
  India, and Japan.

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The China Boom

• In China, value added of affiliates in
  manufacturing accounted for more than two-thirds
  of the value added of all Chinese affiliates in
  2004, and during 19992004, value added of
  Chinese affiliates in manufacturing grew at an
  average annual rate of 23 percent.
• In 2004, more than two-thirds of the sales by
  Chinese affiliates in manufacturing were to
  customers in China, and only 7.4 percent of these
  sales were to U.S. customers, down from 16.3
  percent in 1999.

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India and Japan

• In India, the growth in value added was
  widespread by industry, but it was most notable
  in manufacturing and wholesale trade, in which
  affiliates sell almost exclusively to local
  customers, and in computer systems design and
  related services (part of professional,
  scientific, and technical services), in which
  affiliates sell mainly to customers in the United
  States.
• In Japan, most of the growth in value added was
  in manufacturing, mainly reflecting acquisition
  of firms or establishment of new foreign
  affiliates to serve the local market.

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Impact on trade 1
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The distributed value chain
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Semiconductor market shares
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US Cross-border and affiliate sales of services
US International Trade Commission
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Exporting knowledge

• The United States continues to be a net exporter
  of manufacturing technological know-how sold as
  intellectual property
• ?On average, royalties and fees received from
  foreign firms were three times greater than those
  paid out to foreigners by U.S. firms for access
  to their technology.
• ?In 2003, U.S. receipts from the licensing of
  technological know-how to foreigners totaled 4.9
  billion, 24.4 higher than in 1999. The most
  recent data show a trade surplus of 2.6 billion
  in 2003, 28 higher than the prior year but lower
  than the 3.0 billion surplus recorded in 2000.

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K4P Are things changing?
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RD in China

• Since 1995, China has not only more than doubled
  its RD spending as a percentage of GDP from 0.6
  to 1.3 of GDP, but the number of researchers was
  also increased by 77 between 1995 and 2004
• China will spend some 102 billion on RD in
  2006, a little more than Japan's forecast of 97
  billion. The United States is expected to remain
  the world's top RD investor in 2006 with some
  248 billion, whereas the EU-15, is expected to
  invest around 173 billion. The EU-25 RD
  expenditure in 2004 amounted to 1.9 of GDP, some
  195 billion.

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Implications

• Emergence of a new global division of labour.
• Interpreting the Chinese and Indian miracles
  Instruments of battle rather than warriors.
• Miracles always exist, but they are never the
  same.
• There are, however, some signs of change in China.