Does Fast Growth in India and China Help or Harm US Workers?

Abstract

A major issue today is whether globalization of the world’s labour, capital and product markets, together with rapid economic growth in India and China, will have an adverse effect on workers in the US and other advanced countries. Simulations of different scenarios using the Cambridge‐Alphametrics Model of the World Economy indicate that, at a bloc‐disaggregated level, there are severe supply‐side constraints relating particularly to natural resources (energy and raw materials) that thwart the expansionary demand effects of fast growth in India and China. This analysis is based on long‐term trends in the world economy prior to the current global financial crisis. However, for the sake of completeness, it also comments on the likely implications of this crisis for the USA and other advanced country workers.Development, Industrialization, Growth convergence, India/China, US workers,

Output relationships of China and India with the USA: How do the Asian giants respond to America?

“…Over the 1998Á2005 period, as Yin (2009) finds, labour productivity in China's manufacturing industry increased by 2.78 times, and profits increased by 2.21 times, much higher than the US growth rates of 18.2% and 49.5%. Izurieta and Singh (2010) oppose the conventional argument that fast growth in India and China will harm US workers. They warn that there are severe supply-side constraints relating particularly to natural resources (energy and raw materials) that thwart the expansionary demand effects of fast growth in India and China.…”

“…Rosas predicts the rise of China as an emergence of a new bipolar world. As Izurieta and Singh (2010) comment, one heartening feature of the evolution of the world economy during the past three decades has been the outstanding economic success of China and India*two of the world's most populous countries. They point out that the acceleration of growth in India and China in the past quarter-century is particularly remarkable, as it has taken place during a period of deceleration in world economic growth (as compared with the Golden Age of the 1950s and 1960s).…”

Global Imbalances, Under‐consumption and Over‐borrowing: The State of the World Economy and Future Policies

“…Since the 1970s the model has been modified various times in significant ways taking advantage of the improved availability of statistics and reflecting more recent historical experience. In this article we use essentially the same version of the model as in the paper mentioned earlier (Izurieta and Singh, 2010) with a slightly different bloc aggregation and some improvements in the estimation of debt variables, fiscal and monetary policy, and the generation of institutional balances 16…”

“…Globally coordinated economic policies are potentially beneficial for all but require a high level of engagement and must attend to several issues simultaneously 22 . For example, as shown in Izurieta and Singh (2010), a major obstacle to a global growth convergence strategy is the pressure on world supplies of raw materials and energy. Policies targeted on renewable resources, efficiency of production and use of energy and primary commodities, and reduced pollution and emissions are required to alleviate this constraint.…”

“…The acute reader may have immediately noticed that the approach may be too narrow to be taken at face value, since fundamental issues of supply constraints may be left unresolved. Indeed, this article is a sequel to Izurieta and Singh (2010), in which the question of whether, if India and China expand their economies at their desired and recently achieved rates of growth of 9 per cent per annum and 11 per cent per annum respectively, there is room for the US economy to expand at its full employment rate of 3 per cent per annum. That analysis included simulation scenarios using the Cambridge‐Alphametrics Model (CAM) of the world economy, the same tool used in this article, succinctly described again below.…”