India's Secret Weapon in its Economic Race with China
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Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blog spot.com/ India’s Secret Weapon in its Economic Race with China Post prepared November 10, 2010 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
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This slideshow compares Indian and Chinese demographics and explains why India's more favorable dependency ratio will give it an edge in coming decades
Transcript of India's Secret Weapon in its Economic Race with China
Free Slides fromEd Dolan’s Econ Blog
http://dolanecon.blogspot.com/
India’s Secret Weapon in its Economic Race with
ChinaPost prepared November 10, 2010
Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics
classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
India and China in the Spotlight at the G20 Meeting
The eclipse of the G7 by the G20 as the “steering committee of the global economy” highlights the rising importance of its two largest members, India and China G20 leaders, Toronto, June 2010
Photo source: http://commons.wikimedia.org/wiki/File:Leaders_at_Toronto_G20.jpg
Quiz: Can you name the 20 members of the G20?
Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
China vs. India
China’s economy is currently more than twice as large as India’s, and growing slightly faster, but India has some advantages that are likely to allow it to catch up by the end of the century
Democracy An uncensored Internet Widespread English language Above all: Demographics
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
China vs. India: Total Population
India’s total population will surpass China’s by about 2030, but that is not in itself the key advantage
A large population is an ambiguous contributor to growth People are a country’s most important
productive resource However, a large population can
overstrain other resources, leaving a country populous, but poor
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
India’s Secret Weapon: The Dependency Ratio
India’s “secret weapon” in its race with China lies in the favorable dynamics of its dependency ratio
The total dependency ratio is the ratio of the nonworking population (young and old) to the working-age population Poor, fast-growing countries have a high
ratio because of many children Rich, slow-growing countries have a
high ratio because of many retirees In between, a country passes through a
Goldilocks period where each worker has neither too many children nor too many parents to support
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
India is Entering the Goldilocks Period, China is Leaving
India is just entering its Goldilocks period of a low dependency ratio, whereas China, like the United States, is already leaving its most favorable years
What is more, the curve is more gradual so the lowest-dependency years last longer for India than for China
For the next several decades, India will be sailing with the demographic breeze behind it while China has already tacked into the wind
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
The Source of India’s Favorable Dependency Dynamics
This chart shows the source of India’s favorable dependency dynamics
In the 1970s, China’s total fertility rate slowed from nearly six to under three in just 10 years, partly due to its famous one-child policy
China’s fertility rate has slowed much more gradually
The slower decrease potentially makes India’s transition to a stable, long-lived population easier to manage
Post P101110 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
The Bottom Line
The bottom line: India is tipped to win the economic race
and become the world’s largest economy by the end of the century . . .
. . . assuming, of course, that its favorable demographics are backed by good economic policies!
