This is not about India or China

Well, not entirely. As I looked at the chart in the previous post (told you I was obsessed), I wondered how it would look if the data was scaled to a country other than India – say China.

Just a reminder about what that chart showed: we are interested in the idea of convergence – how and when developing world incomes catch up with that of the West. A good way to visualise that is to set the income of the developing country in question (say, India) to 100 for each year, and then scale incomes of all other countries to that. This allows us to understand that,for instance, US per capita income in 1950 was more than 15 times that of India. Today, it’s around 11 times the Indian average. You can make similar calculations for other countries.

But instead of India, we could use any other country as the base – so I’ve used both India and China. Click or tap on the chart below to see the result. You’ll notice that the ‘tipping point’ at which US (and more generally the West’s) average incomes begin to dramatically converge with that of China is sometime in the mid-to-late 70s. That squares very well with the time that China’s reforms began. The convergence of Indian and Western incomes (much less dramatic), begins in about 1979.

The coincidence of the timing raises an interesting point. As I said in the earlier post, the Indian economy wasn’t in any great shape in the late 70s. Unlike China, we didn’t really begin reforms till the mid-80s. So why did convergence for India begin in the late 70s?

I said last week that this is also about the US, and the coincidence of the timing between Indian and Chinese convergence, I think, strengthens that point. The effects of the oil shocks of the 70s on Western economies was dramatic, and it lead to an internal restructuring of the macroeconomy, domestic politics and society in those countries whose repercussions are still being felt today. You can’t really talk about the ‘rise’ of India or China, without talking about the economic ‘decline’ of the West.

(click or tap on the chart to transition between India and China as the reference country)

Notes:

The data can be found here. They are from the Maddison project database. All average incomes in 1990 dollars.
The original chart appeared in the paper linked in the previous post, which was part of an NBER project called ‘Globalization in Historical Perspective’.
As usual, the charts are made using the D3 javascript library. Code is largely based (i.e. shamelessly filched but adapted) from the example here.

March 6, 2013

7 responses to This is not about India or China

  1. Gaddeswarup said:

    There is another measure that I have been wondering about though I do not know wgar it means. When I was young dollar was worth about three rupees and pound about five rupees. I do not know whether this parity signifies any thing.

  2. Administrator said:

    Hi. The Maddison project from which the data was taken, adjusts for exchange rate differences and changes across years, and the data above reflects that.

  3. Gaddeswarup said:

    I meant that the part of the reason for the growing disparity in exchange rates may be that dollar and pound are used as main international currencies. Recent reports indicate that 65% of hundred dollar bills are outside the USA. Is there some measure of this distortion(my perception) in exchange rates? If that this taken account, the progress of China and India may be even more impressive.

    • Administrator said:

      The incomes are measured in a way that adjusts for differences in purchasing power across countries.This should take account of the factors you are talking about. The unit of measurement is ‘international 1990 GK $’ , which is a widely accepted standard for such comparisons. It is not a market exchange rate.

  4. Gaddeswarup said:

    Thanks for the clarification.

  5. I’m really enjoying the design and layout of your site. It’s a very easy on the eyes which makes it much more pleasant for me to come here and visit more often. Did you hire out a developer to create your theme? Superb work!

  6. Gaddeswarup said:

    Just noticed an article by Jayati Ghosh which seems related
    http://triplecrisis.com/country-income-shares-in-ppp/#more-8035