Economic Growth in China and India: Country comparative study in a Systematic Literary Review

Economic Growth in China and India:

Country comparative study in a Systematic Literary Review

Master Thesis – International Business & Management

ABSTRACT

In this literary review economic growth is compared of two major economies; China and India. This review captures the most important former research that has been performed on growth in China and in India. The systematic literature review is composed of research of journals, articles and books. This research focuses on the sources of economic growth of China and India separately and focuses on the implications for fostering growth. The systematic literature review indicates that governmental reform is the main source of economic growth in China and the service orientated inward investments are the main growth determinants in India.

Table of content

Chapter 1. Introduction………..6

Chapter 2. Background and motivation………9

2.1 Economic Growth……….9

2.1.1 Growth in developing countries………...11

2.2 Country Comparison………..12

2.3 India………16

Chapter 3. Research Methodology………19

Chapter 4. Systematic Literature Review………...21

4.1 Definition of a systematic literature review………...21

4.2 Why use a Systematic literature review……….22

4.3 Advantages and disadvantages of a systematic literature review…...22

4.4 The process of a systematic literature review……….23

4.4.1 Planning stage………23

4.4.2 Implementation of the review………23

4.5 Reporting the systematic literature review………..25

Chapter 5. Results and analysis………...26

5.2 Country analysis……….31

5.2.1 Growth Determinants in China………..32

5.2.2 Growth Determinants in India………34

5.2.3 Growth Compared………..36

5.3 Implications for fostering growth………...38

5.3.1 Implication for fostering growth in China……….38

5.3.2 Implication for fostering growth in India………..40

5.3.3 Fostering growth comparison………...42

Chapter 6. Propositions further research………43

Chapter 7. Limitations and validity……….45

Chapter 8. Conclusion………...46

References……….48

Internet references………...56

Appendix………...57

Appendix A: Sample of data Extraction Form………57

List of Abbreviations

SLR Systematic Literature Review

GDP Gross domestic Product

FDI Foreign Direct Investment

R&D Research and Development

CCP Chinese Communist Party

PPP Purchase Power Parity

INSEAD Institut Européen d'Administration des Affaires

Chapter 1. Introduction

Emerging markets have been increasing their share in the world economy over the past few decades. Without the emerging markets, the current rate of the world economic growth would be much lower than it is at the moment. The emerging markets have are higher industrial growth than the older industrial countries and this is likely to be growing of the coming years. Overall growth within the emerging markets is much higher than the already developed countries and therefore the importance of the emerging markets is increasing (Hale, 2012). Moreover, according to the Economist, western multinationals expect to find 70% of their future growth in emerging markets and 40% of this future growth will be found in China and India.

The leading emerging market country on economic growth over the last decades is China. Over the last decades China has grown to become one of the wealthiest

economies with an astonishing average annual growth rate of 9.06 per cent since 1989 (TradingEconomics). According to the International Monetary Fund in 1980, China was ranked fourth on the List of Economies from 1980 to 1990 on Incremental GDP (PPP). In the decade to come China was already ranked second and the decade after that number one of the world. In 2013 China had a GDP PPP of 13.39 trillion US$. (IMF, 2015)

Another major player in the emerging economies is India. In the period from 1980 up till 1990 India was ranked eighth on the world ranking list of incremental GDP (PPP) and rose the next decade to fourth position. The decade after India ended in 2010 on the third place according to the International Monetary Fund. In 2013 India had a GDP PPP of 4.99 trillion US$. (IMF, 2015)

significantly. In 2013 China incurred a 7,7 per cent growth rate, where India had a 3,2 per cent growth rate (CIA-factbook, 2014). Finally, China has total country revenue that is eleven times bigger than that of India and Chinese GDP per capita is three times bigger than that of those in India (Nationmaster, 2014).

There is no denying that these two countries are experiencing major economic growth over the past decades, however where India is growing in double fold, China is growing in seven-fold (Kalirajan et al. 2012). The difference in economic

performance over the past years is remarkable, since these countries both have huge potential for growth. First, both the countries have a significantly large population. According to the CIA-factbook, China had a population of 1,355,692,576 and India a population of 1,236,344,631 in 2014. Second, fifty years ago both the countries were closed towards foreign economic activity however have started opening up to foreign trade. Moreover, there are country aspects that are significantly different and may have favour India, however are not demonstrated in the national growth of the economies. For example, India being a former colony of England, 28 per cent of people speak English. This is a relatively high amount compared to China, where this only accounts for 0.73 per cent (Jian Yang, 2006). More specifics on the country specific aspects will be provided in further sections of this thesis.

However, India is not performing as well as China in the perspective of economic growth and this raises questions on how to foster economic growth. Since economic growth is important concept for all countries in the world and this phenomenon needs to be researched in order to be able to learn from different manners of creating

economic growth. As emerging countries are aiming to catch-up with the developed countries, economic growth has to be fostered in the most efficient manner. This significant difference in growth between these two countries indicated that there are different approaches to growth.

Research question

China and India? This research question can be divided in to sub-questioned that can be answered. What are the main reasons for economic growth in China? What are the main reasons for economic growth in India? What does former research state in comparing India and China? What are the different explanations for the difference in economic growth? How does one foster growth? What research has not been

performed, which could contribute to this country comparative research on growth? How could the current literature be complemented in the future?

Objective

In answering this research question one contributes to the different aspects in this research area. First, this research sums up all former research on growth in China. Second, this research sums up all former research on growth in India. By doing so, a clear overview is provided of the former studies, patterns uncovered and comparisons are made. Third, an overview is provided of the implications for economic growth in both China and India. Third, research gaps can be addressed and suggestions for future research could evolve from this literature research.

This thesis is structured in the following manner; in chapter 1 the introduction, research question and the objective of the research is provided. In the second chapter the general background and theoretical background discussed. In chapter 3 the methodology of the research is discussed. In chapter 4 a systematic literature review is discussed. In the fifth chapter the analysis and the results of the research are

Chapter 2. General and Theoretical Background

2.1 Economic Growth

Economic growth is broad perspective and therefore in this section the concept is discussed by several theories in this area. In this section research is discussed which has found determinants for economic growth. These determinants are discussed to provide an overview of the current literature on economic growth and to provided a scope for the following research on China and India.

One of the first theories of economic growth was written by Solow (1956), this neoclassical model had some basic assumptions. First, the assumption of constant return to scale. Second, the assumption of diminishing marginal productivity of labour and capital. Third, the assumption of exogenously determined technical progress and substitutability between capital and labour. Therefore in this particular model the savings and investment ratio is an important determinant for growth (Petrakos et al. 2007). However, this neoclassical model of Solow does not discuss the technological progress within a country that can account for economic growth. The endogenous growth theories take more factors into account within a country. The theorists of this particular stream focus on knowledge development and innovation as additional factors of economic growth. Romer (1989), Grossman and Helmpman (1991)

introduced the effect of new knowledge on economic growth. Moreover Aghiona and Howitt (1992) add innovation and Barro (1990) adds infrastructure.

Petrakos et al (2007) summarize several determinants of economic performance related to economic growth. The authors conclude that the most important factor by both the exogenous and the neoclassical theorists is investments. Here the

neoclassical theorist focus on an impermanent period and the exogenous theorists focus more on the long-term investments made. In the following part of the thesis several research results considering the determinant or drivers of economic growth are to be discussed.

employees and the know-how that one can require trough education. Research within the area of the relation of economic growth and the level of education of the

population has shown that this relation is a positive one. Research of Barro (1990), Barro and Lee (1993), Barro and Sala-i-Martin (2005), Hanushek and Kimko (2000) confirms this determinant of economic growth.

Innovation, research and development are other determinants of economic growth. A high level of innovation, research and development can contribute to economic growth by delivery of higher quality of products, ameliorative processes and enhance absorptive capacity in organizational learning (Fagerberg, 1994. Ulku, 2007).

Furthermore, a positive relationship among growth and openness to trade is described by Harrison (1996), Frankel et al (1996) and Yanikkaya (2003), therefore this can be considered a determinant of growth.

Foreign Direct Investment can be considered a driver of economic growth. There is research indicating that inward and outward FDI has a positive effect on economic growth in a country (Borensztein et al, 1998. Lipsey, 2004). Interconnected with the inward and outward FDI is the openness towards the global economy. The openness to trade has been proven to be sources of economic growth by many authors,

explaining that trade affects economic growth through exploitation of the comparative advantage, technological leakages that are from foreign parties, increasing levels of economies of scale and the increasing level of competition that evolves from the international trade. Finally, the openness increases the GDP per capita and causes economies to grow faster (Dollar, 1992. Sachs and Wargner, 1995. Dollar and Kraay, 2002).

Moreover, according to research trust in an economy is also a factor that influences the growth within a country. The countries that have high trust in their economies are expected to accumulate physical capital, have higher motivation to innovate and have more human resources. (Keefer and Knack, 1997. Beugelsdijk et al, 2004).

The geographical aspects of country are also affecting the level of economic growth. Factors such as the distance of the country from the equator, average temperature, and quality of the soil have been investigated and tend to have effect on productivity, economic structure, transportation costs and competitiveness (Hall and Jones, 1999. Rodrik et al, 2004. Armstrong and Read, 2004)

The demographic aspects of country also tend to matter according to former research. Dimension such as population growth, population concentration, age distribution and migration have effects of economic growth. Some have a negative effect on economic growth, such as population growth and a relatively elder age distribution. On the other hand, population concentration and immigration are related to economic growth. (Kormendi and Meguire, 1985. Kelley and Schmidt, 1995. Bloom and Williamson, 1998.)

2.1.1 Growth in Developing Countries

More recent studies on economic growth specialize in specific countries. Considering developing markets, Petrakos et al. (2007) have developed ten specific factors, that affects economic growth. First, the political stability within a country. Second, the significant foreign direct investment in a country. Third, secure formal institutions, such as a legal system, property rights, tax system, and finance system. Fourth, the amount of natural resources a country possesses. Fifth, the level of infrastructure within a country. Sixth, the geographical aspects of the country with sub-factors such as climate and location. Seventh, the level of robust macro-economic management. Eighth, the capacity of adjustments and flexibility within a country. Ninth, a low level of public bureaucracy. Tenth, a high degree of openness to trade prospers the level of economic growth. Other determinants of economic growth overlap with developed countries, therefore the prior determinants for growth discussed in the previous section, Economic growth, are also considered to be applicable in developing countries.

2.2 Country comparison

In the following section of the thesis general information is provided on China and India, by doing so one has a proper background on the two countries and can read the further literature review in perspective. The focus will be on the demographics, economics, politics, infrastructure and innovation. These aspects of the countries are selected since they are often mentioned as growth determinants in literature purely focussed on growth as well as in literature focussed on China, India and growth.

2.2.1 China

2.2.2 Demographics

According to the Factbook composed by the Central Intelligence Agency (2014), China has 1,355,692,576 citizens and the population growth rate was 0.44%. The age structure is composed as depicted in figure 1 below.

Figure 1: Age distribution China

This creates a median age of 36.7 years, where women have a slightly higher median of age. Women have a median of 37.5 years and men a median of 35.8. The life

expectancy at birth of the total population is 75.15 years, males having 73.09 years and women 77.43 years.

The ethnic composition of China’s population is depicted in figure 2 below.

Figure 2: Ethnic composition of China

The level of literacy in China is quiet high. Of the total population of over 15, 95.1% can read and write. School life expectancy, from primary to tertiary, is 13 years. In China 50.6% of the total population lives in an urban environment and the annual rate of urbanization between 2010 and 2015 is 2.85%. The biggest city in China is Shanghai, with 20.208 million people, second largest city in the capital Beijing with 15.594 million people (CIA-factbook, 2015).

2.2.3 Economics

After the ruler Mao Zedong, China economy changed from a closed and centrally planned economy towards a more market-orientated economy. Following the changes have contributed to the economic growth within China. First, China opened it doors to foreign trade. Second, the financial system in China became decentralized, developing stock markets and a modern financial system. Third, the collectivised agriculture started to liberate. Although China is liberating these markets, the government supports the state-owned enterprises in order to foster global competitiveness. In 2013, the Chinese economy measured by purchasing power parity (PPP) was the second largest economy of world, growing tenfold since 1978. The reasons for the economic growth will be investigated more thoroughly in further sections of this

97%

1% 2%

Ethnic Composition China

paper. According TradeEconomics, the average unemployment rate in China was 4.1% the last five years (CIA-factbook, 2015).

The major challenges for the Chinese government are reducing the high domestic savings rate and therefore low domestic consumption and facilitating higher-wage job opportunities. Moreover, the Chinese are suffering from high levels of corruption and have a very high environmental footprint (CIA-factbook, 2015).

2.2.4 Politics

China has been a prominent society for many centuries, leading in arts and science and being the foremost civilization in Asia. However, in the last two centuries China had to coop with wars, civil unrest and food scarcity. After the Chinese drove out Shang Kai-Shek, during World War II, Mao Zedong started an autocratic socialist system. This system guaranteed the sovereignty of China however did costs the lives of tens of millions of people. After Moa Zedong, Deng Xiaoping succeeded the leader in 1978 and started improving the living conditions and initiated a more market-orientated economic system. Since the 1990s, China has increased its global footprint in the world economy and is participating in international organizations.

Today, the Republic of China is a communist state with 23 administrative divisions, considering Taiwan their 23th division. The country is leaded by the Chinese

Communist Part (CCP) and has eight nominally independent small parties, which are controlled by the CCP. President Xi Jinping and Vice President Li Yuanchao lead the country since 2013 (CIA-factbook, 2015).

2.2.5 Infrastructure

simplicity and predictability of formalities. 2) Quality of trade and transport related infrastructure, such as railroads, roads, information technology, airports and ports. 3) Ease of arranging competitively prices shipments. 4) Competence and quality of logistics services, such as transport operators and customs brokers. 5) Ability to track and trace consignments. 6) Timeliness of shipments in reaching destination with the scheduled or expected delivery time. The dimension are ranked from 1 being the worst score up till 5 being the most favourable score.

China is ranked number 28th _{on this global ranking system of logistics with an}

average score of 3.53. China is scoring the lowest on the first dimension, efficiency of the clearance process by border control agencies, with a score of 3.21. The highest score of China is on the dimension of timeliness of shipments in reaching destination with the scheduled or expected delivery time, scoring 3.87.

2.2.6 Innovation

To depict the innovation within China, one can use the Global Innovation Index. This index is published by Cornell University, INSEAD and the World Intellectual

Property Organization. This is a world ranking of world economies innovation capabilities and results. This index takes many facets of a country into account, such as R&D, education, online infrastructure, amount of knowledge workers, innovation linkages, knowledge diffusion, intangible assets and knowledge absorption.

China is ranked 29th _{on the world ranking of this index, with a percentage rank of}

0.80, one being the highest. Some of the dimensions China scored relatively high on are; 1) assessment in reading, mathematics and science (100%). 2) National Office resident Patent application (100%). 3) National Office resident Utility Model

application (100%). 4) High-tech exports (100%). 5) Creative goods Export (100%).

2.3 India

2.3.1 Demographics

India has 1,236,344,631 citizens and the population growth rate was 1.25%.. The age structure is composed as depicted in figure 3 below.

Figure 3: Age composition India

This creates a median age of 27 years, where women have a slightly higher median of age. Women have a median of 27.7 years and men a median of 26.4. The life

expectancy at birth of the total population is 67.8 years, males having 66.68 years and women 69.06 years.

The ethnic composition of India’s population is depicted in figure 4 below.

Figure 4: Ethnic composition India

The level of literacy in India is significantly different among man and women. Of the total population of over 15, 62.8% can read and write, of the women 50.8% and of the man 75.2%. School life expectancy, from primary to tertiary, is 12 years.

In India 31.3% of the total population lives in an urban environment and the annual rate of urbanization between 2010 an 2015 is 2.47%. The biggest city in India is the

29%

18% 41%

7% 6%

Age distribution India

0 to 14 15 to 24 25 to 54 55 to 64 64 and over Indo-Aryan 72% Dravidian and Mongoloid 25% other 3%

capital New Delhi with 22.654 million people and the second largest city is Mumbai with 19.744 million people. (CIA-factbook, 2015).

2.3.2 Economics

According to TradeEconomics, the average unemployment rate of India has been 7.04% over the last 5 years. India’s economy was leaded by autarkic policies, however in the 1990s this was changed. The economy became more open-market orientated economy. The industry was deregulated, companies that were owned by the government were privatised and the foreign direct investment became less regulated. Almost halve of the workforce in India is agricultural, however the largest income for India are retrieved from services. India has become a large exporter of information technology, business services and software employees. In 2012, the Indian

government has deregulated foreign direct investments even further in order to attract more foreign investments.

The Indian government has several problems to tackle, such as corruption, poverty, violence against women and girls, no proper property right protection, lack of education and transportation and infrastructure for the agricultural industry.

Moreover, according to TradeEconomics, the average unemployment rate of India has been 7.04% over the last 5 years.

2.3.3 Politics

The Indian civilization is one of the oldest there is. It started to evolve in the 2nd _and

3rd _{millennia before Christ and the Aryan tribes and Dravidian merged to become the}

Indian culture. In the fifteen hundreds the European explorers discovered the Indian civilization and in 19th _{century the British became the dominant political power in}

India. Mohandas Gandhi and Jawaharlal Nehru were part of a non-violent resistance that leaded to the independence of India in 1947. Since the declaration of

The republic of India is a federal republic with 29 states and 7 union territories. The country has dozen of national and regional parties and is leaded by president Pranab Mukherjee since 2012 (CIA-factbook, 2015).

2.3.4 Infrastructure

In order to measure the infrastructure per country one can use the Logistics Performance Index by The World Bank. This Index uses six dimensions to cover more than just the level of infrastructure but also takes other important features of country into account. This index provides a broad, accurate and current depiction of the overall infrastructure of a country. More information on this Index and the six dimensions is provided in 2.2.4 Infrastructure of China.

India is ranked number 54th _{on this global ranking system of logistics with an average}

score of 3.51. India is scoring the lowest on the first dimension, efficiency of the clearance process by border control agencies, with a score of 2.72. The highest score of India is on the dimension of timeliness of shipments in reaching destination with the scheduled or expected delivery time, scoring 3.51.

2.3.5 Innovation

To depict the innovation within India, one can use the Global Innovation Index. This index is published by Cornell University, INSEAD and the World Intellectual

Property Organization. More information about this index in found in the section 2.2.5. India is ranked 76th _{on the world ranking of this index, with a percentage rank}

of 0.47, one being the highest. Some of the dimensions India scored relatively high on are; 1) communication, computer and information services export (100%). 2) ITC and business model creation (63.3%)

Chapter 3. Research Methodology

The research methodology for this literary review is constructed in the following manner. First, the data collection is restricted, due to its macro-economic

access to an online library with many academic articles and books. Next to the online library provided by the Rijks Universiteit Groningen, the World Wide Web has many articles that are accessible for the public which contain information on China, India and economic growth.

After having collected the literature necessary on India and China and the economic growth figures in form of gross domestic data, the comparison and the relationships between the growth determinants and the implication for fostering growth are analysed. The literature per country will be prepared separately and when conclusion can be made in different relationship between the two countries a final comparison can be made in order to research for patterns or other insights that may come to light. The findings of the data that will be observed will described the relationships between the factors and the comparison of the country aspects may lead to insight of the differences and similarity of economic growth.

In answering the sub-questions this research is attempting to find the causes for the differences in the economic growth between China and India. The sub-questions in this research isolate the different relationships that are causing economic growth in both countries. By isolation of these factors, the relationships may come to light and therefore the specific determinants can be found. After the isolation of the

relationship, a country comparison can be made since India has not has the same amount of economic growth and this can be evaluated per factor influencing the growth. Due to the country comparison that is done eventually the outcomes can be degree of the relationship can be compared and one can conclude whether one factor has more or less impact on the economic growth. The final research question can than be answered in comparing all the relationship and country comparisons described above.

In order to conduct this literary review in the most effective and structured manner a systematic literature review approach is used. Further information on a systematic literature will be discussed in Chapter 4.

Chapter 4. Systematic Literature Review

review, the planning and implementation of systematic literature review and finally the manner of reporting the systematic literature review.

4.1 The definition of a systematic literature review (SLR)

The definition that is often cited by authors on systematic literature review is by

Brereton et al (2007): “A systematic literature review (often referred to as a

systematic review) is a means of identifying, evaluating and interpreting all available research relevant to a particular research question, or topic area, or phenomenon of interest. Individual studies contributing to a systematic review are called primary studies; a systematic review is a form of secondary study.”

Another formulation of the definition by the same author: “Systematic literature review (also referred to as a systematic review). A form of secondary study that uses a well-defined methodology to identify, analyse and interpret all available evidence related to a specific research question in a way that is unbiased and (to a degree) repeatable.”

The use of this method has become popular in the 1990s and is often used until this day. The method is frequently used in the medical research area and has become

popular since the beginning of 2000s in the research on engineering software. (Babar

& Zhang, 2009)

4.2 Why use Systematic Literature Review

The main reasons to perform a systematic literature are the following. First, with a systematic literature review one summarises the existing evidence within a particular research area. By doing so one can identify the benefits and the limitations that occur in the particular area. Second, to pinpoint research gaps that are left unsearched within a particular academic area. Third, to help future researchers by providing a research background so that further research can be done to complement the current

or future hypotheses development within the academic research area (Brereton et al, 2007).

4.3 Advantages and Disadvantages of Systematic Literature Review

The major advantages of a systematic approach towards a literature review are the following. First, when having a systematic and well-structured methodology, the results tend to be less biased. Second, a literature review captures a broad perspective. The research can include multiple areas of research. The result of the studies may be transferable across different areas of research. The papers and results from different research areas create variation within the particular research segment. Third, when using quantitative research, one can combine data that is retrieved and therefore increasing the reliability and the possibility of finding results that were undetected

before. (Brereton et al, 2007).

The main disadvantages of systematic approach in a literature review are the following. First, in the selecting process of the literature by the researchers there is always a selection bias. The authors decides which literature is included, since the research is of the opinion that those matter or that these are available to the researcher. Second, systematic literature reviews are more time consuming than traditional literature reviews. Third, the strength of a meta-analysis can be considered a disadvantages. The meta-analysis makes it possible to detect small biases and the

true effects. (Brereton et al, 2007).

4.4 The process of a systematic literature review

Within a systematic literature review there are three stages. The first stage of the process is the planning stage of the review. The second stage of the process is the implementation of the review. The third and final stage in the process is the reporting of the review. In the section below the stages of this process will be described in the same order.

As the name of the stage indicates, this stage is composed of the planning of all the steps of the systematic research literature. In this stage the need of the research is stated and the research questions of the research are articulated. After having articulated the research questions and need for the research is formulated, the databases need to be searched in order to find out if there are already literature

reviews performed that answer this particular question (Brereton et al, 2007).

4.4.2 Implementation of the review

The implementation of the literature review is composed of several steps. First, the search process strategy. In order to maintain the systematic approach in this type of research the search process requests a strategy. A common strategy is to isolate the different factors or phenomenon within the research question. After having isolated the different aspects within the research question, one can conduct literature research on the particular matters separately. One can combine the isolated factors in further stages to provide an all-capturing research. In order to capture all literature within the scope, one can search on abbreviations, synonyms and alternative spellings.

Moreover, the search strategy should have as many sources as possible. Next to online databases, other source should be consulted, such as, journals, research registers, grey literature and the World Wide Web. (Brereton et al, 2007). The search strategy should take into account the publication bias. This publication bias consists of the bias that is created because positive results are more frequent published than the research results that are negative. In order to minimize the publication bias, one can scan the grey literature, scan conference proceedings, contact experts and other researchers that are active within this academic research area and finally statistical analytical techniques

are developed to recognise the significance of the publication bias. (Brereton et al,

2007).

Second, study selection. In this stage the relevance of the literature is stated. The literature has to be selected that answers the research question directly. This should be done by studying the title, abstract and the conclusions of the literature. Furthermore, within the selection process the literature that is not included in the research should be stated as well as explained in order to provided a proper scope of the literature

Third, data extraction. In this stage the research must be aware of certain pitfalls that can bias the research. Often research is published multiple times, this should be taken into account and not be used twice. Furthermore, the research that is published does not always include all the data that is retrieved during the research or other relevant results. Moreover, some research may be manipulated to create to most beneficial results. In order to extract proper data, one can create a data extraction strategy. There are two types of data extraction strategies. First, preliminary analysis. This analysis is considered the initial analysis of the results. The goal is to capture the results that are of relevance for the research questions. Mostly, this is done via the abstract of the paper. After having read the abstract, the researcher can consider continuing reading the literature. Second, secondary analysis. After having done the preliminary analysis, the secondary analysis is done by focussing on the heading and sub-heading of the literature. When relevant aspects are found within these parts of the literature, further in depth research is performed within these sections. (Brereton et al, 2007).

The fourth and final step of implementation of the review is called data synthesis. Is this stage one summarizes the results of the studies. The data extracted can provide an answer to the research question and may come from separate studies combined

(Brereton et al, 2007)

4.5 Reporting the Systematic Literature Review

In this final stage of the systematic literature review the results of the review are presented. This can be done in either a journal or in the form of a thesis. When one reports this in a journal there are size restrictions. In order to report properly, the researchers are meant to keep track of all the decisions made within the process.

Chapter 5. Results and analysis

5.1 Descriptive analysis

In this part of this thesis the descriptive analysis is provided. Here the literature of the systematic literature is described and analysed. In order to provide a clear overview of the literature all the article are analysed by using data extraction forms. An example of this form is presented in Appendix A. With the use of these data extraction forms, the literature is clearly structured in categories. The categories are covered in the following part and include; search keywords, data origin, authors, journals, core years, research fields, growth determinants per country, implications for further growth and finally the future research suggestions.

5.1.1 Search keywords

In the process of literature gathering certain keywords were used to find the literature needed for this systematic literature review. The most used search keywords are ‘India’ and ‘China’. Theses keywords were used in every search attempt. Second, most used keyword in the search of literature is ‘growth’. Third most used keyword in the search for literature is ‘growth determinant’. Other keywords that were often used to collect literature are ‘growth incentive’, ‘growth force’ and ‘economic growth’. Moreover, some search keywords were used less often since the results did not come in great numbers. These include, ‘Chindia’, ‘economic performance’ and ‘increasing TFP’. Most of the keywords were used in combination and were occasionally

complemented by more specific search words such as ‘trade liberalization’, ‘openness’ or ‘infrastructure’ when literature indicated that these could provide insight into the causes of economic growth in China or India.

words the amount of results decreased and one could proceed manually. In the manual selection the sources were selected that included the determination of growth of the different economies or the implications for fostering growth. In the table below, an example of the search results in provided.

Table 1: Example; search results per search engine

Search words Google Scholar SmartCat

‘China’, ‘growth’ 2.720.000 327.949

‘India’, ‘growth’ 2.660.000 152.750

‘India’, ‘China’ ‘growth’ 1.870.000 34.459

‘China’,‘growth’, ‘determinants’ 496.000 89.288 ‘India’,’growth’, ‘determinants’ 426.000 39.870

As one can conclude from the table provided above, the more specific the search words the less results the search engines produce. Another adequate manner of narrowing down the research results is adding specific journals to the search key words, such as ‘China Economic Review’. After having narrowed down the number of sources that were provided by the search engines, the manually selection was done by reading the title, after that the abstract and when necessary the introduction and/or the conclusion. Sources were excluded from the research that deviated from the subject or discussed the phenomenon as side issue. Finally, a selection was made of 50 articles that discussed the growth determinants of China and/or India and

5.1.2 Data origin

The data collected for this literature review is retrieved from several different sources. The documents studies are working papers, books, journals and other types of

documents such as conference proceedings. In the chart below the sources of all the documents used within this research are displayed.

Figure 5: Data origin of selected literature

As figure 1 described most of the literature selected in this research is published as an academic journal, totalling at 35 different articles. More insight in the aspects of these articles will be provided in the following sections. The other sources of the literature used are the working papers (8), followed by the discussion papers (3), and books (2), conference paper (1) and a research paper (1).

5.1.3 Authors

This systematic literature review is composed of 48 different authors. Overall this topic has a wide variety of different authors and one can concluded that there are no authors that are focussed on this specific topic exclusively. However some authors are cited and mentioned more frequent in this area since there research has contributed fairly to this specific area. Thirukodikaval Nilakanta Srinivasan, a professor of

economics at Yale University of Indian origin, has multiple articles in this review based on his articles on India’s economic growth. Furthermore, Barry Bosworth, a senior fellow in the Economic Studies Program at the Brookings Institutions in

Washington D.C, is specialized in economic growth in developing countries, therefore his work is also used multiple times within this review. One can read specific

information on the authors and the articles in Appendix B.

5.1.4 Journals

The data collected has been published in a wide variation of different journals. In the following part the different types of journals are mentioned. In Appendix B one can read which article was published in which journal in a clear structured table. Most of the literature used for this research was collected from academic journals, therefore the journals included are mentioned below. The journal included are: China Economic Review, Progress and Development Studies, Economic and Political Studies,

Economic and Political Weekly, Applied Economics, In Search of Prosperity: Analytic Narrative on Growth, World Development, Journal of Economic

Perspectives, journal of Economic Dynamic and Control, Economic Development and Cultural Change, Oxford Review of Economic Policy, Journal Policy Modelling, The World Economy, Economic Systems, Journal of Asian Economics, Social and

Behaviour Science, Journal of Comparative Economics, Journal of Development Economics, International Economics and Economic Policies, Economic Change and Restructuring, Review of Economics and Statistics, The European Journal of

Comparative Economics, Growth, Review of World Economics, Economic Modelling, Journal of Emerging Knowledge on Emerging Markets, Journal of International Business and Management.

Some journals are used multiple times with different articles. Four articles are retrieved from China Economic Review, four articles are retrieved from World Development, two articled from Journal of Comparative Economics and two articles from Social and Behaviour Science. The journal that is used the most frequent is Economic and Political Weekly, which has six articles selected from.

Behaviour Science and the Journal of International Business and Management.

5.1.5 Core years

As one can see in the graph depicted below, most articles are written in the year 2007, followed by 2006 and having another peak in 2013. The earliest article was published in 1991, the availability of sources before this time period is scares and the content of the articles did not cover the right content to be included in this literature research.

Figure 6: Core years of articles

5.1.6 Research fields

All the articles selected for this literature review are in the research area of economics. There are some exceptions that are included since the content of the article provided interesting insights for this review. The exceptions are one article that was retrieved from a business-orientated journal and another article that was retrieved from a behavioural science journal.

5.2 Country analysis

In the graph below the distribution of analysis per country per article are depicted. In this literature review there are three categories; articles covering China, articles covering India and articled that cover both China and India.

Figure 7: Distribution of analysis per country

As one can see in the graph most articles within this literature review are covering China (19), followed by China and India (18) and finally India (13). This difference in number of articles is caused by the availability of articles that cover the specific content of this research.

0 2 4 6 8 10 12 14 16 18 20

5.2.1 Growth Determinants in China

In this systematic literature review, the different growth determinants per country were retrieved via the data extraction forms. An example of the data extraction form can be found in Appendix A. In the following part the growth determinants,

according to the literature selected, of China growth over the last decades is described.

The first growth determinant that is mentioned by many authors is the governmental reforms that occurred in 1978. China’s government implemented several reforms concerning their industry in this year. First, the government changed to agriculture industry from a collectivised to a decollectivized industry by decentralization. Moreover there was an increase in the prices in this sector, which caused more efficient use of labour and therefore more productive farms. This reform caused that there emerged a labour migration from the agricultural sector towards the

manufacturing industry and another migration from the public to the private sector. This caused economic growth in China since there was a shift from low-productivity agriculture to higher-productivity industry and services sector. Second, the

government granted the managers of enterprises more autonomy. This included that the managers were able to set their own production goals, grant bonuses to employees performing well, sell products in private markets and maintain some of the earnings in order to be utilized in future investments. Third, the Chinese government started to open up towards foreign investments. Before 1978 the Chinese government did not allow foreign parties to invest into Chinese economy, however after the reforms this was allowed. These foreign investments have caused major economic growth for China. This will be discussed in more depth in a following section on trade

the economic liberalization and export orientated governmental strategy caused the export of China to rapidly increase and causing the domestic productivity to increase. (Sachs and Woo, 1997.Hu and Khan, 1997. Chen and Feng, 2000. Yudong and Yan, 2003.Démurger, 2000. Holz, 2007. Tang et al, 2008. Mah, 2010.Zhu, 2012. Qiren, 2013. Yueh, 2013).

Furthermore, many authors seem to agree that the domestic investments of the

Chinese government have caused economic growth (Fleisher et al, 2008. Zheng et al, 2009). This determinant of economic growth is closely connected to the inward foreign direct investments. The foreign direct investment is positively correlated with the domestic investment and the foreign direct investments have a significantly effect on the economic growth of China. (Chen and Feng, 2000.Tang et al, 2008. Mah, 2010).

Another reason for the economic growth in China that is often mentioned by different authors is the capital, labour and productivity accumulation that causes the total productivity factor to increase. An increased amount of human capital positively contributes to the total productivity factor by increasing output per worker and productivity growth, which contributed to the economic growth in China (Chen and Feng, 2000. Fleisher et al, 2008, Qiren, 2013.)

Other influences on the economic growth in China that are mentioned by multiple authors mention but not as the main determinants for the economic growth are the infrastructure level of China (Démurger, 2000), the entry in the WTO in 2001 (Xing and Pradhananga, 2013), population dynamics of China (Bloom et al, 2013),

technological progress (Zheng and Hu, 2006), cheap labor (Qiren, 2013), growth of labor (Chow and Li, 2002) and fast decision making due to homogenous system (Bardhan, 2007),

In order to provide insight into the weight of each argument provided by the different authors, one can take the number of citations into account. The higher the number of citations, the more accepted and reliable the argument is. Per argument provided for economic growth in China the number of citations are added and depicted in table 1 below.

Argument Total number of citations (added)

Governmental reforms 3,489

Liberation of trade 2,795

Domestic investments 408

Foreign Direct Investment 415

TFP increase 570 Infrastructure 740 Entry TWO 2 Population dynamics 56 Technological progress 160 Cheap labor 1 Growth of labor 299 Decision speed 87

As one can see in table 1 depicted above, the argument that is most cited consists of the governmental reforms of the Chinese government starting in 1978. The second argument that has been cited by significantly more is the liberation of trade, followed by infrastructure and the increase of total factor productivity.

5.2.2 Growth Determinants in India

Most authors tend to agree that the rapid increase in India was caused by economic policies that were undertaken by the government. In the 1980s the Indian economy had accumulation of technology, entrepreneurship and management. The government started to install a pro-business policies that relieved companies from tax, encouraged growth and expansion and eliminating legislations that constrained private businesses (Kohli, 2006). Moreover, special legislations were installed to discourage strikes and the opening up of the economy for foreign investments and import liberalization (Kohli, 2006).

industrial sector, manufacturing industry and the tertiary sector. The former has been developing ever since and has become the main sector of India, that has become a country that has service-led growth (Kohli, 2006. Balakrishnan and Parameswaran, 2007. Basu and Maertens, 2007. Topalova and Khandelwal, 2007). The inward FDI after the policy reforms in India increased significantly and increased economic growth, however these investments were mainly in the manufacturing sector. Since India had more service-led growth, the inward investments had a more transitory effect due to the spillovers, rather than a direct effect on growth (Chakeraborty and Nunnenkamp, 2006).The increasing privatization due to the governmental reforms have caused to economy to grow significantly in this period. Furthermore, the

openness towards the global economy and the liberalization of trade mentioned before has created a stream of inward foreign direct investment in the economy of India (Delong, 2003. Chakeraborty and Nunnenkamp, 2006). Another important growth factor for India to be considered are the the public investment by the government. These investments have had a significnalt effect on the economic growth of India’s economy (Kumar and Rosegrant, 1991. Mallick, 2002, Sen, 2007)

Other influences on the economic growth in India that are mentioned by multiple authors mention but not as the main determinants for the economic growth are the infrastructure level of India and the demographic aspects of India. Choudhry and Elhorst (2010) are the only authors that claim that the demographics of India have been a major influence on the economic growth of India and they state that 39 per cent of the economic growth of India, in the period of 1961 until 2003, can be explained by the population dynamics of India.

In order to provide insight into the weight of each argument provided by the different authors, one can take the number of citations into account. The higher the number of citations, the more accepted and reliable the argument is. Per argument provided for economic growth in India the number of citations are added and depicted in table 2 below.

Table 2: Number of citations per argument - India

Government reforms 229

Service-led growth (IFDI) 710

Liberation of trade 339

Domestic investments 163

Demographics 21

As one can see in the table depicted above, the argument consisting of service-led growth caused by inward foreign direct investments is most cited. Second most cited is the argument for economic growth in India caused by the liberation of trade. The third most cited argument is the governmental reforms that occurred in the beginning of the 90s.

5.2.3 Growth Compared

In this section the growth determinants are compared of the two different countries in order to provide a more comparative scope on the growth determinants.

China main growth determinant is the governmental reforms that occurred in the 1980s. The main growth determinants of China are the shift from a collectivised towards a decollectivized industry, the shift from low-productivity towards a higher-productivity industry, and the opening to international trade. In India the main growth determinants are the transfer the economy made towards a service-led economy. The main growth determinant is considered the service-led growth that evolved in India in the 1990s.

When comparing the two economies, China has benefited from manufactured-led growth, whereas India benefited more from the growth that originated from the service industry. After the India has thrived from service-led growth because the educational system historically has been skewed towards the service sector. This has caused a high supply to high productivity workers that have been employed in

industry in China and India’s growth caused by service-producing industry (Bosworth and Collins, 2007).

Considering the amount of growth that occurred in these economies the Chinese has outperformed the Indian significantly. As stated before “Where India is growing in double fold, China is growing in seven-fold” (Kalirajan et al. 2012). Moreover, when comparing the different levels of growth China outperforms India on every aspect. When inspecting the reasons for this phenomenon, one can compare the factors that influence growth. Comparing the factors that influence economic growth, China scores higher on these factors. Aspects of the Chinese economy, such as

5.3 Implications for fostering growth

Of the articles considering China and economic growth, seventeen articles provided implication for China in order to sustain growth. Interesting to see in these seventeen papers suggesting for sustainment of growth, that nine different papers suggest that China should focus their investment on human capital. So more than half of all the articles suggest that China can foster growth via investing in human capital. These include human capital accumulation (Sachs and Woo, 1997. Yan and Yudong, 2002. Fleisher et al, 2008. Yueh, 2013. Qiren, 2013) and more specifically investment in education (Chen and Feng, 2008. Fan, 2011. Zhu, 2012).

The implication that was mentioned second most by the authors is that in order to maintain growth China should continue to open up to foreign trade and loosen regulation on foreign investments. This implication states that in order to attract as much international trade and foreign investment, China is required to revoke the protectionist barriers to international trade and inwards foreign direct investment (Sachs and Woo, 1997. Yan and Yudong, 2002. Srinivasan, 2006.Chen and Feng, 2008.).

Another suggestion for sustaining growth that was mentioned multiple times was the investment in the infrastructure. The investment in infrastructure will foster economic growth, since this will increase the amount of trade that is possible, increase

productivity and the ease of doing business in China increases (Démurger, 2000. Srinivasan, 2006. Chen and Feng, 2008. Fan, 2011.).

Moreover, fostering growth in China can be achieved by raising the quality of the export products. (Dimaranan, 2009. Qiren, 2013). The increase in the quality of products that are exported will lead to an increase in demand for these products (Dimaranan, 2009) and opens up the opportunity to export the products to developed countries (Qiren, 2013).

financial system. Other authors focus on the amount of investment into domestic demand and suggest that this is the best manner in order to maintain growth over the coming years (Yan and Yudong, 2002. Yueh, 2013).

Some authors conclude that the Chinese government has to change some regulations in order to foster economic growth in the future. Some argue that the retirement age has to be increased and that the labour participation should be increased (Golley and Tyers, 2013. Choudhry and Elhorst, 2010).

Others suggestions for fostering growth that were mentioned less often include; China should shift towards a more service-orientated economy (Yueh, 2013), increase privatisation (Chen and Feng, 2008), reform to a more market-orientated economy (Yan and yudong, 2002), loosen FDI regulations and invest in domestic savings (Tang et al, 2008), invest into agricultural research (Fan, 2011) and increase productivity (Herd and Dougherty, 2007).

In order to provide insight into the weight of each implication provided by the different authors, one can take the number of citations into account. The higher the number of citations, the more accepted and reliable the implication is. Per implication provided for economic growth in India the number of citations are added and depicted in table 3 below.

Table 3: Number of citations per implication – China

Implication Total number of citations (added)

Invest in human capital 1,649

Liberate international trade 1,338

Invest in infrastructure 1,134

Increase quality export 10

Investing in national institutions 811

Increase of working population 35

Service-orientation 5

Increase privatization 285

More market-orientated 535

FDI loosening & domestic savings 97

Invest in agricultural research 25

As one can concluded from table 3 depicted above, investment in human capital is the most cited implication for fostering growth in the future in China. Second most cited implication for fostering growth in China is focused on liberating international trade. Thirds most cited implication for fostering growth in China is investing in

infrastructure.

5.3.2 Implication for fostering growth in India

Of the articles discussing the implication for India’s future dealings with growth, twenty-one papers discuss the implication for fostering growth in India. Of the suggestions made, most authors conclude that there is a need for investment in the infrastructure (Kumar and Rosegrant, 1991. Chakeraborty and Nunnenkamp, 2006. Srinivasan, 2006. Bosworth et al, 2007.Basu and Maertens, 2007. Felipe et al, 2008. Fan, 2011. Kalirajan, 2012). Most authors agree that investment in the infrastructure of India is needed and will increase and foster economic growth of the Indian

economy. Some authors go into more specifics and state that the energy infrastructure has to be enhanced, the distribution of energy and the generation (Srinivasan, 2004. Kalirajan, 2012).

The second most mentioned implication for fostering growth is the increase of the level of trade liberalization, by decreasing the countries trade barriers. Liberating trade will foster economic growth within India due to the increase in international trade and their increased share in the global economy. (Delong, 2001. Srinivasan, 2004. Srinivasan, 2006. Topavlova and Khandewal, 2007. Boswort, 2007. Felipe et al, 2008. Kalirajan, 2012).

Another implication that was mentioned multiple times by the different authors was the manner of cooperating with the foreign direct investments in India. India should create a more open door policy towards FDI than it is currently having. (Chakeradorty and Nunnenkamp, 2006. Srinivasan, 2004. Felipe et al, 2008. Kalirajan, 2012)

Moreover, the Indian government should benefit maximally from the investments that are made in the country (Chakeradorty and Nunnenkamp, 2006. Kalijaran, 2012). Other authors tend to suggest that investment in education and skilled labour force is the manner of fostering growth in the future (Chakeraborty and Nunnenkamp, 2006. Bosworth, 2007. Choudhry and Elhorst, 2010. Fan, 2011).

labour regulations do not foster growth and the rules need to be adjusted in order to maintain growth and development in this market (Srinivasan, 2004. Basu and Maertens, 2007. Pandey and Dong, 2008). Other authors tend to implicate that since India has service led-growth, India has to invest in boosting the IT-services to maintain growth (Chakeradorty and Nunnenkamp, 2006. Balakrishnan and Parameswaran, 2007).

Finally, suggestions that are provided by authors and are not discussed by other authors included; stimulate domestic investmnets (Choudhry and Elhorst, 2010), boost dometic demand (Choudhry and Elhorst, 2010), Reduce fertility (Golley and Tyers, 2013), invest in agriculture (Fan, 2011), increase the quality of export products (Dimaranan et al, 2009), improve the living standards of the Indian people (Navyar, 2006), investment in institutional development (Zheng and Hu, 2009), investments in anti-corruption initiatives (Basu and Maertens, 2007), counter inequality between the different regions in India (Basu and Meartens, 2007), undo economic clusters

Chakerborty and Nunnenkamp, 2006) and red-tape reduction (Delong, 2001).

Table 4: Number of citations per implication – India

Implication Total number of citations (added)

Investment in infrastructure 661

Trade liberalization 954

FDI deregulations 258

Invest in education and skilled labour 349

Reform of labour regulations 198

Invest in It-services 198

Domestic investment 21

Reduce fertility 14

Invest in agriculture 25

Improve living standards 49

Invest in institutions 160

Counter corruption and inequality 89

Undo economic clusters 112

As one can conclude from table 4 that depicts the number of citations per implication, the most cited implication is trade liberalization. This implication is mentioned by fewer authors, however is cited more than the second most cited implication, which is investment in infrastructure. The third most cited implication for future growth in India is investment in education and skilled labour.

5.3.3 Fostering growth comparison

Chapter 6. Proposition further research

After having systematically reviewed the literature concerning China, India and the causes for economic growth, one can conclude that several aspects need to be further investigated. Some aspects of economic growth in China and India have not been discussed or not been researched in an academic scope. In this chapter some suggestions for further research into the area of growth determinants of China and India are provided. By doing so, this systematic literature contributes to the current research of growth in China, growth in India and contributes to the research area of growth determinants and on fostering growth.

One of the authors of this literature review mentions the reduction of red tape in order to foster economic growth (Delong, 2003). Moreover, in the past years red-tape has been in the news as a negative aspects of a country. In India the red-tape level is very high (The Economist, 2001) and this is affecting the economic growth. Future

research could focus on the effect of red-tape in India on economic growth. Moreover, the influence of red-tape in India on economic growth and the fostering of economic growth is relatively unknown, therefore it might be of benefit to have a more precise indication of the influence of the red-tape. Therefore, the following proposition is suggested for the use of future research;

Proposition 1: Red-tape is negatively related to economic growth and the fostering of economic growth in India.

Furthermore, when comparing China and India one is investigating a country that is experiencing service-led growth and a country with manufactured-led growth. Since these two countries differ on many aspects, it is difficult to state which forms of growth is more beneficial for a country. Insights into this matter will help explaining the different growth rates of both the economies and will be applicable to other economies. Since China’s growth has had a higher average over the last decades and therefore the following proposition for further research is suggested;

A final suggestion for further research is a further investigation of the effect of the level of labour costs that are present in India and China. According to the Bureau of Labour Statistics (2015), in both China and India the labour prices are rapidly

increasing over the last years. Since this is possibly affecting the level of international trade and therefore economic growth of both of the countries, one could suggest the following proposition;