Trade, Infrastructure and Regional Disparity in India and China Prabir De, RIS Fourth International Russia-India-China Annual Conference, New Delhi 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-levelIndiaChina 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$)Rank Shanghai86231Coastal Beijing75292Capital Tianjin59543Coastal Zhejiang48794Coastal Jiangsu44385Coastal Guangdong43246Costal Shandong36447Coastal Fujian33958Costal Liaoning33719Costal Hebei259510Non-coastal Top 10 Chinese Provinces in PCI, 2006 PCI (US$)Rank Goa15901Coastal Delhi13992 NCR Haryana8813 Maharashtra8414Coastal Punjab7925Non-coastal Gujarat7756Coastal Himachal7677Non-coastal Kerala6958Coastal Tamil Nadu6799Coastal Karnataka61910Coastal 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$)Rank Hainan190322Coastal Qinghai186723Non-coastal Sichuan169924Non-coastal Jiangxi165525Non-coastal Guangxi164226Non-coastal Tibet158327Non-coastal Anhui158228Non-coastal Yunnan138129Non-coastal Gansu135730Non-coastal Guizhou95831Non-coastal Bottom 10 Chinese Provinces in PCI, 2006 PCI (US$)Rank Manipur46120Non-coastal Chattisgarh45721Non-coastal Jharkhand43222Non-coastal Jammu & Kashmir42223Non-coastal Assam42224Non-coastal Rajasthan40525Non-coastal Orissa39226Coastal Madhya Pradesh35527Non-coastal Uttar Pradesh30128Non-coastal Bihar17929Non-coastal Bottom 10 Indian States in PCI, 2006 *PCGSDP in US$ at current price *PCNSDP in US$ at current price

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 Guangdong Beijing Tianjin Jiangsu Zhejiang Fujian Liaoning Shandong Hainan Top 10 Provinces ProvinceOpenness (%)Rank Guangxi Jiangxi Inner Mongolia Shaanxi Tibet Sichuan Qinghai Hunan Henan Guizhou Bottom 10 Provinces  Eastern coastal provinces  Non-coastal provinces  Unchanging ranks of provinces on openness:  Avg. rank correlation (2000 – 2006)

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  CV increased from 1.26 in 2000 to 1.28 in 2006 Provinces with >1% export share, 2006

Rising inter-regional disparity in openness in Indian states ScoreRank Assam Haryana Bihar AP Kerala9.785 Maharastra9.616 Gujarat9.347 Karnataka8.778 UP8.778 MP Orissa Rajasthan WB Punjab TN Avg. Openness Index, ( ) *Methodology follows Marjit et al (2007)  Rise in inter-regional disparity in openness in India.

Coastal states having higher infrastructure endowment StatesIDIRank Delhi50.281Capital Goa21.042Coastal Punjab20.543Non-coastal Haryana16.624NCR Kerala16.525Coastal Tamil Nadu16.26Coastal Gujarat16.027Coastal Karnataka15.78Coastal Maharashtra14.649Coastal Andhra Pradesh Coastal Top 10 States in India, 2004 StatesIDIRank Shanghai6.641Coastal Beijing6.272Capital Tianjin5.963Coastal Guangdong5.234Coastal Zhejiang5.165Coastal Jiangsu5.046Coastal Liaoning4.767Coastal Shandong4.718Coastal Fujian4.669Coastal Hebei4.4610NCR Top 10 States in China, 2005

States with higher infrastructure earning higher income Indian statesChinese provinces  Coastal states, with higher infrastructure endowment and higher openness, earning higher income

Openness, infrastructure and income: India and China X: Infrastructure Y: Openness Z: 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