Tuesday, May 17, 2011

Institutions and growth (China vs. India)

While China is now wealthier than India and still growing faster, India's long run prospects may be greater. Institutions are the key. As discussed in the WSJ link below, China may hit a wall at about $15,000 per capita unless it reforms it institutions (private property, courts, press etc.). India's democracy will make it easier for it to reform its institutions. Today's election results in India suggest that voters are increasingly desirous of transparent, corruption free government.

WSJ (5-16-11) "Politics Plays Part in Achieving Rich-Nation Status" by Mark Whitehouse

WSJ (5-17-11) "Greater Expectations in India" by Ruchir Sharma

Here listen to one of the economists cited in the WSJ article,  Daron Acemoglu (MIT), talk about why countries differ in wealth:

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