AEM/ECON 4540 China’s and India’s Growth Miracles Fall 2008 Professor Eswar Prasad The growing economic might of China and India and their increasing integration into global trade and finance have put them firmly on the center stage of the world economy. In this course, we will undertake a comparative analysis of the growth experiences of these countries through the twin lenses of international finance and development economics. We will examine the roles of trade and financial openness, institutions, government policies, and labor markets in determining the trajectory of growth. In particular, we will focus on the roles of domestic financial sector development and international financial integration, and the interaction between them, in the process of economic development. This will essentially serve as a guided tour through key concepts in international trade and finance. Finally, we will discuss growth prospects for China and India, the myriad domestic and external challenges that they face in sustaining high growth, and the implications for the world at large. Prerequisites: Econ 101 and 102 or equivalent, or permission of instructor. You will get the most out of this course if you have completed at least basic courses in macroeconomics, international economics and econometrics/statistics. Lecture hours: Wednesdays, 10:10 a.m . - 12:05 p.m. Discussion section: Tuesdays, 3:35 - 4:15 p.m. or 4:15 – 5:00 p.m. (student’s choice) Grading: Letter grade only Grade will be based on notes, term paper and class participation Credits: 3 Lab: The lab will involve informal discussions to review data issues and generate ideas for papers. It will also include student presentations of notes and preliminary versions of papers. First meeting of lab will be on September 9 and lab will meet weekly thereafter. Strongly encouraged for all students. Teaching Assistant: Rahul Anand (ra254) TA’s Office Hours: Thursdays 12 noon – 2 p.m., Warren 431 Course Support: Carol Thomson (cmt8)2 COURSE SCHEDULE Week 1, September 3 Topic: Understanding Growth Patterns in China and India and their Welfare Implications Bosworth, Barry, and Susan Collins, 2008, “Accounting for Growth: Comparing China and India,” Journal of Economic Perspectives, Vol. 22:1, pp. 45-66. Gordon, James, and Poonam Gupta, 2004, “Understanding India’s Services Revolution,” IMF Working Paper No. 04/171. Kochhar, Kalpana, and others, 2006, “India’s Pattern of Development: What Happened, What Follows” http://www.petersoninstitute.org/publications/papers/subramanian2006.pdf Prasad, Eswar, 2008, “Is China’s Growth Miracle Built to Last?” China Economic Review, forthcoming. Week 2, September 10 Topic: Sectoral Reallocation and Growth; Data Sources and Issues Continuation from Week 1 We will also have guest presentations about data resources available at Cornell to work on China and India, and also to generate comparative perspectives with other emerging market economies. Some data issues (and potential pitfalls) will also be discussed. Week 3, September 17 Topic: Balance of Payments, Exchange Rates Callen, Timothy, 2007, “PPP Versus the Market: Which Weight Matters,” Finance and Development, Vol. 44:1. Catao, Luis, 2007, “Why Real Exchange Rates,” Finance and Development, Vol. 44:3, pp. 46-47. Mankiw, Gregory, N., 2002, Macroeconomics, fifth edition, Worth Publishers.3 Section 5.3, pp. 127-141. [On reserve at the library] Week 4, September 24 Topic: Capital Controls, Capital Account Liberalization Bhagwati, Jagdish, 1998, “The Capital Myth: The Difference between Trade in Widgets and Dollars,” Foreign Affairs, Vol. 7:3, pp. 7-12. Kose, Ayhan, and Eswar Prasad, 2004, “Liberalizing Capital,” Finance and Development, Vol. 41:3, pp. 50-51. Kose, Ayhan M., Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei, 2007, “Financial Globalization: Beyond the Blame Game,” Finance and Development, Vol. 44:1, pp. 9-13. Lane, Philip R., and Sergio L. Schmukler, 2006, “The International Financial Integration of China and India,” World Bank manuscript. Prasad, Eswar, 2008, “Some New Perspectives on India's Approach to Capital Account Liberalization,” manuscript, Cornell University. Prasad, Eswar, and Shang-Jin Wei, 2008, “China’s Approach to Capital Inflows: Patterns and Possible Explanations,” in International Capital Flows edited by Sebastian Edwards (University of Chicago Press). Reddy, Y.V., 2007, “Point of View: Converting a Tiger,” Finance and Development, Vol. 44:1. pp. 20-23. Rodrik, Dani, 1998, “Who Needs Capital-Account Convertibility?” Essays in International Finance, No. 207 (Princeton, NJ: Princeton University Press). Stiglitz, Joseph, 2004, “Capital-Market Liberalization, Globalization, and the IMF,” Oxford Review of Economic Policy, Vol. 20:1, pp. 57– 71. Data Note due on Friday, September 19 @ 12 noon Send document by email to me (eswar.prasad), with cc to Rahul Anand (ra254) and Carol Thomson (cmt8). See last page of syllabus for structure, format.4 Week 5, October 1 Topic: Trade Liberalization and Growth Guest Lecture by Professor Nancy Chau, Cornell Week 6, October 8 Topic: Macroeconomic Policies and Growth in China Guest Lecture by Dr. Steven Dunaway, Head of China Mission Team, IMF Before class, read the latest IMF Staff Report on China (for 2006), available online at: http://www.imf.org/external/pubs/cat/longres.cfm?sk=20060.0 Week 7, October 15 Topic: Exchange Rate Regimes, Monetary Policy Goodfriend, Marvin, and Eswar Prasad, 2007, “A Framework for Independent Monetary Policy in China,” CESifo Economic Studies, Vol. 53:1, pp. 2-41. Goldstein, Morris, 2005, “Renminbi Controversies,” Washington, DC: Peterson Institute for International Economics manuscript. Keidel, Albert, 2005, “China’s Currency: Not the Problem,” Carnegie Endowment for International Peace, Policy Brief No. 39. McKinnon, Ronald, 2007, “Why China Should Keep its Exchange Rate Pegged to the Dollar: A Historical Perspective from Japan,” International Finance, Vol. 10:1, pp. 43-70. Research Note due on Friday, October 3 @ 12 noon Send document by email to me (eswar.prasad), with cc to Rahul Anand (ra254) and Carol Thomson (cmt8). See last page of syllabus for structure, format.5 Prasad, Eswar, Thomas, Rumbaugh, and Qing Wang, 2005, “Putting the Cart Before the Horse? Capital Account