CHINESE AND INDIAN INVESTMENTS AND ECONOMIC STRATEGY

Carl Dahlman
Henry R. Luce Associate Professor
Georgetown University School of Foreign Service
and
Member, U.S. National Academies Committee
on Comparative National Innovation Policies

Dr. Dahlman said he would discuss how the emergence of China and India as economic powers was creating a new global balance. One feature of this change was a period of tremendous uncertainty, he said, including the recent financial crisis that has affected not just developed countries but the whole world. Another feature was a new cast of competitors who are changing the global landscape. He mentioned also several new “binding constraints,” including global climate change and higher costs of capital that are “in the offing.”

One way to measure global change, he said, was in terms of purchasing power parity over the past three decades. The economically advanced countries, he said, had been generating about 64 percent of global GDP in 1980, but this figure had dropped to about 53 percent in 2009. China had risen from earning from 2 percent of GDP to 12.5 percent, and India had rise from 2.24 percent to 5 percent. The EU had lost relative share, dropping from 18.5 percent in 2000 to 15 percent in 2009; it had also lost population while the developing nations rose. The United States had dropped in PPP from 22.5 to 20.5 percent.

The economic crisis that began in 2008 also affected China and India differently. The crisis had the largest impact on the developed economies because it emerged from the financial sector of the United States and Europe, and spread elsewhere from there. GDP growth in developing countries did not turn negative in China and India, but continued to grow at 8 to 9 percent per year; both countries are expected to continue to grow three to four times faster than the rest of the world. Africa is also growing relatively fast, he said, primarily because of an interdependent relationship with China, to which it exports commodities.

As the largest of the emerging economies, China and India are becoming more important not only in terms of trade, but also in activities related to tertiary education, science and engineering, journal articles, patenting, inward and outward foreign investment, and geopolitical policies, many of which place increasing pressures on the global economy and the environment.

Two Millennia of Economic History

Dr. Dahlman reviewed the last two millennia of economic history and the relative dominance of China and India. For the first thousand years, he said,



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