Lecture notes
Study notes for EC104 Asian Reform
- Module
- EC104. World Economy
- Institution
- The University Of Warwick (UoW)
Revision notes with content from lectures and seminars for EC104 topic 14 Asian reform:
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Asian reform: 1979-2001Indian economic reforms
The 1991 crisis
● 1980 - India was one of the most protected and regulated economies globally
○ Had balance of payments and fiscal deficits, increasing India’s
vulnerability to shocks
● 1990 - Gulf war increases oil prices and decreases remittances from workers
○ Reduced demand and political uncertainty
○ Loss of investor confidence and capital flight
● 1991 - emergency loan from the IMF in response to a balance of payments
crisis leaving India with enough FX to pay for 2 weeks of imports
● Government collapsed - new PM P.V. Narasimha Rao
○ Started liberalisation with Manmohan Singh as the finance minister
● IMF support was conditional on macro stabilisation and structural reforms
○ Had a condition of trade liberalisation
Changes before 1991
Kotwal et al (2011) - growth 1980-1 to 1990-1 was not hugely different from 1991-2
to 2004-5. Due to:
● Creeping liberalisation - retreat from license raj (1975)
● Fiscal expansion - large fiscal deficits from 1984-91 caused a balance of
payments crisis
● More pro-business approach in Indira Gandhi’s 2nd term (1980)
● Increase in the savings rate from the mid 1970s driven by households
○ 1971-81 - bank branches nearly x3. More banks in both urban and rural
areas
○ Leads to an increase in loans and investment in machinery
● Green revolution - 1993 - 90% of wheat was from a high yielding variety
○ Decreased food prices and allowed workers to move out of agriculture
Reforms since 1991
● Kotwal et al (2011) - liberalisation increased access to capital and tech for
domestic firms
○ Also increased competition and pressure to be efficient
● India has grown despite a low savings rate, a lack of FDI and few
manufacturing exports
○ Manufacturing sector still lags - growth was driven by services
○ Driven by domestic investment, not FDI
● Average tariff fell from 55-10% (1980s-2005)
, ○ Products with non-tariff barriers fell from 87 to 45% (1988-95)
● Caps on foreign ownership lifted since 1991
● Removal of government monopolies on many sectors
○ Now only on atomic energy, defence and railway
The role of services
● Kotwal et al (2004) - manufacturing continues to grow slowly
○ Besley and Burgess (2004) - regulation encourages firms to remain
small and within the unregulated sector
○ Managers cite tax, infrastructure and access to capital
● Rapid service growth since 1991 - dominant sector by 2011
○ Business services and banking have grown by 10% pa
○ Accounts for 60% of GDP and only 30% of employment
■ High labour productivity
○ Growth of service exports by 18% pa
○ Reforms opened services to the private sector and increased FDI
■ Easier / cheaper access to factors
○ Kotwal et al (2011) - high skill-intensity sectors, government preference
for higher education over mass public schooling
■ Disproportionate share of public spending on education for the
elites
Chinese economic reforms
Overview
● Storesletten and Zilibotti (2014) - the 1980s saw the growth of SEZs
○ Shenzhen, Zhuhai, Shantou and Xiamen
○ Expanded 4 times between 1980-2005
○ Tax incentives for FDI, openness for trade, joint Sino-foreign ventures
○ Allowed capitalism to flourish - relies on the price mechanism to
allocate, not the government
○ Allowed experimentation with free market policies
● 1990 - reopening of the Shanghai Stock Exchange
○ State owned companies subject to competition
○ Private enterprises allowed from 1997
○ Private share of manufacturing rises from 10-50% (1994-2007)
○ Joins the WTO in 2001
Growth and export performance -2001
● 1949 - establishment of the People’s Republic of China
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