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Comparative Economic Systems: China, India, and Iran

Comparative Economic Systems: China, India, and Iran. Econ 372 Dr. Khorassani Qi Li, Yihe Li. Agenda. Backgrounds of China, India, and Iran Compare and classify the three economic systems based on six criterions Evaluate their economies based upon nine criterions Future prediction

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Comparative Economic Systems: China, India, and Iran

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  1. Comparative Economic Systems: China, India, and Iran Econ 372 Dr. Khorassani Qi Li, Yihe Li

  2. Agenda • Backgrounds of China, India, and Iran • Compare and classify the three economic systems based on six criterions • Evaluate their economies based upon nine criterions • Future prediction • Policies recommendation

  3. Backgrounds • China • Area: 9,640,821 km² • Population: 1,336,718,015 • Political system: People’s republic • India • Area: 3,287,263 km² • Population: 1,210,193,422 • Political system: Republic • Iran • Area: 1,648,195 km² • Population: 76,923,300 • Political system: Islamic republic

  4. Classification based upon the six institutional frameworks • Allocation Mechanism • Forms of ownership of land and capital • Role of planning • Types of incentives • Income redistribution • Role of politics

  5. 1st Criterion: Allocation Mechanism • China • Mostly command - China is an old socialist country • Some market - In the past 30 years they developed the market socialism • India • Some market - 20th century, India set free market principles as the foundation of economic system • Some traditional - Hindu Religion and caste system • Iran • Some traditional → Islam • Some command • Some market

  6. 2nd Criterion: Forms of Ownership of Land and Capital • China • Socialism - Socialist market economy with Chinese characteristics • India • Capitalism - State capitalism which has both private and government operations within the market mechanism • Iran • Socialism and Capitalism - A system where the productive forces are owned and run by state in a capitalist way

  7. 3rd Criterion: Role of Planning • China • Planned market economy, central planning - socialist market economy with Chinese characteristics - a long gradual process to shift to pure market economy • India • Planned market economy, indicative planning - is both centralized and localized by influences of British and Soviet-Union • Iran • Planned market economy, indicative planning - Iran used to be centrally planned, relying heavily on five-year plans - indicative planning → goal of economic liberalization and inflation- fighting

  8. 4th Criterion: Types of Incentives • Moral or Material China: Both India: Both Iran: Both • Material (investment) The goal of investment is to gain profit, the higher the investment as the percentage of GDP, the more material incentives involved in the economy China: 41% India: 31% Iran: 34% • Moral (religious participation) China: 4% to 6% India: 99.9% Iran: 100%

  9. Great Proletarian Cultural Revolution(1966-1976), Mao asserted the slogan “Serve the people” to encourage people to work in the village to solve the food shortage on China • 40% of Chinese labors are working in agriculture now.

  10. 5th Criterion: Income Redistribution • Taxes rate • China • highest marginal tax rate of individuals: 45%(highest) • highest marginal tax rate of corporations: 31.4%(lowest) • India • highest marginal tax rate of individuals: 30%(lowest) • highest marginal tax rate of corporations: 35%(highest) • Iran • highest marginal tax rate of individuals: 35% • highest marginal tax rate of corporations: 33.7% • China has the highest individual tax rate but the lowest corporative tax rate. • India has the highest corporative tax rate but the lowest individual tax rate.

  11. 6th Criterion: Role of Politics • Government expenditures(% of GDP) China: 11% India: 16% Iran: 21% The country with higher government spending means the government plays a more important role in the economy. Rankings: -Iran -India -China

  12. Evaluating the Economies Based Upon the 9 Criterions

  13. The Level of Output • Iran had the highest GDP per capital during 2000 to 2008. • Iran maintained positive growth before 2009. • China still kept an increasing GDP per capital in 2009. • India has seen limited growth in GDP per capita in the long run.

  14. GDP Growth in Output • China kept the highest growth from 2000 to 2009. • Iran had a unsable GDP per capital growth among these countries. • In 2007, all 3 countries saw significant declines. But India recovered in 2008. • Why India could rebuilt economic situation in 2008? • well-suited economic revolutions and good policies • more liberty of business regulations

  15. Composition of Output(Percentage of GDP Expenditures) Source: Gapminder.org

  16. Composition of Output(Percentage of GDP Expenditures) • Agriculture • India contributes a significant amount to Indian GDP expenditures. (second worldwide in farm output) • Military • Iran and India had similar percentage on military, which were higher than China. • The Chinese government’s published military budget is USD 77.95 billion in 2010 . (second largest in the world) • Health • Compared to China and India, Iran had the higher % of GDP expenditure on health care programs. • Inport/Export • China is the highest % of GDP expenditure in import and export

  17. Degree of Static Efficiency • Efficiency in production • We can’t produce more of one thing without having to produce less of another thing. • Production efficiency → operating on PPF • China has a relatively flat unemployment rate, fot the labor-intensive sector.

  18. Degree of Static Efficiency • In Iran, unemployment is especially common among the youth and women. - female unemployment rate is twice that of men - high unemployment rate cause drug addiction and deep rifts in family • In India, the unemployment can be identified by a chronic characteristic. - poverty - huge population • Efficiency in consumption • No one can be better off without making someone else worse off. • Economic Freedom Index (later in the 9th criterion)

  19. Degree of Dynamic Efficiency • China: 4% • India: 5.5% • Iran: 15.3%

  20. Macroeconomic Stability • GDP per capita growth Rankings: China India Iran • Exchange rate Related to net export? Why?

  21. Macroeconomic Stability • Example - After Chinese RMB appreciated, the price of Chinese goods in other countries would be more expansive than before, the demand of Chinese goods decrease. - China exports less, X ↓ - Foreign goods in China become cheaper than before, the demand of foreign goods increase - China imports more, M ↑ - Net export = X – M

  22. Economic Security of the Individual • Infant mortality per 1,000 new births China: 24 India: 47 Iran: 41 • Physicians per 100,000 people China:142 India:60 Iran:89 We can see the negative relationship between the Infant mortality rate and Physicians number.

  23. Degree of Income or Wealth Equality • Gini index (100=perfect inequality, 0=perfect equality) China: 41.5 India: 38.3 Iran: 36.8 • Poverty rate China: 15.9% India: 41.6% Iran: 2% Iran has the lowest in both Gini index and poverty rate

  24. Degree of Economic Freedom • Economic freedom index Rankings: India China Iran India and China are both members of WTO. That may cause the higher economic freedom in these two countries.

  25. Future Prediction • China • The increase of GDP growth rate will be slowed down since the appreciation of RMB. • Inflation rate will increase - High growth rate in GDP - The reduction of government involvement in economy to help the transition of market economy. • Income distribution will be more unequal - productivity matters - cost minimum • Increase in degree of economic freedom

  26. Future Prediction • India • The population growth rate will decrease • GDP per capita growth rate would be higher than the current level • Software production and automobile manufactory will lead the economy to grow at a higher rate • Inflation rate goes up since the high GDP growth rate

  27. Future Prediction • Iran • Increase in net export - World’s economy is recovering from the economic crisis, the demand of oil will increase • GDP growth rate goes up in short run • GDP growth will go back to a very stable rate in long run

  28. Recommended Policies • China • Improve the economic freedom - Reduce the international trade barriers • Stabilize the exchange rate • Work on the income equality - Lower the poverty rate

  29. Recommended Policies • India • Control the birth rate - Could learn from China’s “One Child Policy” Encouragement instead of command • Increase economic security of individual - Increase the total number of physicians to reduce the infant mortality rate • Lower the poverty rate

  30. Recommended Policies • Iran • Improve the economic freedom - reduce the government involvement in the economy • Reduce the unemployment rate • Plan of re-employment in China this plan includes financial rewards--such as tax reduction and loan guarantees to companies who hired unemployed workers

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