China, India and the World Economy

The author documents the determinants of rapid growth in China and India in the past two decades and the links between these growth rates and the global economy. He presents indicators of the extent to which China and India are integrated into global markets for goods and services, and discusses the sources and sustainability of growth by decomposing growth into components due to factor accumulation and total factor productivity. He then discusses foreign capital flows to China and India and comments on how public policy could influence emerging growth scenarios. The author stresses the importance of a successful conclusion to the Doha round in order to contain and forestall the rise of protectionism. Regarding domestic policy, he warns about political tensions and distributional conflicts especially for China. He concludes that despite these worries, both countries should continue to develop as economic powerhouses in the medium term.