The Role of Trade, R&D and Human Capital in Growth: A Story of the Chess Piece Fallacy
Keywords:
accounting, finance, innovation-led growth, human capital-led growth, endogenous growth, India-China growth, Toda–Yamamoto causality testAbstract
An eye-opening econometric analysis of real GDP growth from 1980 to 2020 reveals the divergent and dynamic impacts of R&D activities and human capital on the Indian and Chinese growth regimes. Similar in population quantum, GDP and growth patterns before 1980, the two countries parted ways. China grew its economy by an average of 10% annually between 1980 and 2020, reaching a tremendous valuation of 10 trillion USD. In contrast, India experienced several economic downturns and reached an economic valuation of 3 trillion USD following growth at an average rate of 6% annually after 1990. In this study, the endogenous growth model is applied to explain the discrepancy between these figures via a comparison of the tremendous advances of each country. The ARDL-bounds approach to cointegration, followed by the Toda– Yamamoto test for causality, reveals that R&D and human capital contributed greatly to propelling growth in China, while in India, GDP growth was influenced by a nonsignificant, negative coefficient of human capital and a lower contribution from R&D. India missed an opportunity for growth because of policy restrictions on the creation of high-quality human capital, which downscaled its prospects via lower labor productivity. Moreover, under Deng Xiaoping's leadership, China developed a successful policy framework nurturing human and intellectual capital.
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