Macroeconomic Policy, Inequality and Poverty Reduction in India and China
Abstract: It is now commonplace to regard China and India as the two economies in the developing world that are the “success stories” of globalisation, emerging into giant economies of the 21st century. The success is defined by the high and sustained rates of growth of aggregate and per capita national income; the absence of major financial crises that have characterised a number of other emerging markets; and substantial reduction in income poverty. These results in turn are viewed as the consequences of a combination of a “prudent” yet extensive programme of global economic integration and domestic deregulation, as well as sound macroeconomic management. Consequently, the presumed success of these two countries has been used to argue the case for globalisation and to indicate the potential benefits that other developing countries can reap, as long as they also follow “sensible” macroeconomic policies. The importance of these two countries spills over into discussions of international inequality as well. Almost all of the studies which have found that global inequalities have reduced in the period of globalisation [Dollar and Kraay (2002); Surjit Bhalla (2003); Sala-i-Martin (2003) among others] rely very substantially on the increase in per capita GDP in China and India – which together account for around one-third of the world’s population – to arrive at their conclusion. Conversely, those who have been more sceptical of the impact of global economic integration on inequality have tended to look at patterns of inequality within these countries in particular [Cornia (2003); Milanovic (2004); Reddy (2003) etc.] to find that there has been an increase in economic differentiation (including increased rural-urban inequalities) and probably more vulnerable conditions for the poor in these countries (hidden by the per capita GDP figures), which change the conclusions with respect to global inequalities. For all of these reasons, a comparison of the nature of macroeconomic policies in India and China, and the extent to which these have been “pro-poor” is of great analytical importance at the present moment. In this paper, we attempt such an examination, assessing the growth performance and its impact on poverty and inequality, and also specifically addressing the question of how the macro policies have contributed to observed outcomes.
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