New Delhi: It’s not the abundant labour or capital but increased productivity that India and China, Asia’s fastest growing economies, would need to sustain their rapid growth, economists believe.
“Both India and China have experienced rapid growth in recent decades. Sustaining this rate of economic expansion will require less reliance on abundant labour and capital and more support from improved productivity,” Citigroup’s chief Asia economist Yiping Huang and Emerging Markets chief economist Donald Hanna wrote in a report.
While India would need more investment in infrastructure and education, China needs to achieve more balanced economic expansion with less reliance on rapid export growth, they said.
Citing the example of a strong but unsustainable economic growth, the report said that the former Soviet Union achieved remarkable growth in the 1930s and 1950s, but then collapsed in the 1980s, as it was hugely dependent on labour and capital while contribution from other factors dropped to nearly zero.
In mid-1990s, the noted economist Paul Krugman argued in a research paper - The Myths of Asia’s Miracle - that strong growth in some East Asian economies in the 1980s and early 1990s could not be sustained because of their reliance mainly on labour and capital mobilisation and not on productivity improvements.
Additionally, findings of a recent growth accounting exercise by economists Barry Bosworth and Susan Collins confirm that productivity improvement is crucial for sustainable growth, Citigroup said.