National Research Paper

2000 and 2004, it grew at an average rate of 6.2 percent. In the past three years, it has grown at slightly over 8 percent. The sector that has been growing the fastest has been services.

Compared to China, the structure of the economy has not changed as rapidly. Twenty-five years ago the per capita income of these two giant economies was very similar. However, China has had a much faster rate or growth for a longer period of time and more rapid structural change (Table 2). To some extent, India has not followed the traditional pattern of a large increase in the share of industrial value added and then a shift to services. There has been a faster and earlier shift to services, driven in part by a rapid growth of high-value knowledge-intensive services (such as information technology [IT], banking, consulting, and real estate), although they account for only a very small share of India’s very large labor force.

Another difference between India and other developing countries is that it is much less integrated into the global system through trade (Table 3). The contrast with China is again very stark as the share of trade of goods and services in the Chinese economy is more than twice that of India.


India is a rising economic power, but one that has not yet integrated very much with the global economy. It has many strengths, but it also will be facing many challenges in the increasingly globalized, competitive, and fast changing global economy.

Figure 1 presents the current and projected size through 2015 of the world’s 15 largest economies in terms of purchasing power parity (PPP) comparisons.3 Using PPP exchange rates, India already is the fourth largest economy in the word. Moreover, using average growth rates for the period 1991–2003 to project future size, India surpasses Japan by the end of next year to become the third largest economy in the world. During the period projected, China (currently, the second largest economy), will become the largest economy, surpassing the United States by about 2013. However, it should be emphasized that past performance is not necessarily a good predictor of future performance—just of potential, as future reality is usually different than projected trend. Nevertheless, this projection based on PPP exchange rates is helpful to emphasize that India has great potential, but also faces competition, particularly from China. It is therefore useful to quickly take stock of India’s strengths and challenges.

Differences in Firm Location, Equipment, and Structure
Meant Uneven Pass-Through of Benefits from Fracking

U.S. oil production doubled between 2005 and 2015. This hydraulic fracking boom and a ban on export of U.S. oil produced a domestic glut, and per-barrel prices fell far below the European benchmark price. How this change in American refineries' input costs is the subject of a study summarized in the March edition of The Digest. Also featured in this month's issue are studies of the policies that would encourage older Americans to return to the workforce, the effects of internet markets on used book prices and availability, the influence of state versus national licensing on interstate movement of professionals, the reason U.S. retail chains embrace uniform pricing, and the impact of President Roosevelt's confiscation of German book copyright protections in 1942.

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The NBER Bulletin on Aging and Health

Arkansas' Episode-Based Payment Model
Reduced Healthcare Costs Relative to Similar States

Predetermining a total spending target for specific healthcare episodes incentivizes primary providers to manage their healthcare services and referrals efficiently, as primary providers that exceed the targets could bear the excess costs. A study of episode based payments in the Arkansas Health Care Payment Improvement Initiative, summarized in the current issue of the NBER's Bulletin on Aging and Health, found that spending declined by 3.8 percent in the first year after implementation, relative to similar states that did not implement episode-based spending targets, with no declines in measures of care quality.

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The NBER Reporter

Improved Availability of Detailed Data Aids Study
of Birth Order's Relationship to Children's Success

Large data sets from Scandinavia and the practice at the time of military enlistment of administering IQ tests (Norway) and doing psychological evaluations (Sweden) have enabled researchers to deeply explore the influence of birth order on children's development of cognitive and non-cognitive skills, economic success, and health in adult life. A report is featured in the current edition of The NBER Reporter. Also in this edition of the quarterly Reporter, bureau-affiliated economists write about their studies of the evolution of factor shares, the expanded scope of the NBER Program on Industrial Organization, the growing importance of social skills for success in the labor market, and the dynamics of the international business cycle.

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James Poterba, president

James Poterba is President of the National Bureau of Economic Research. He is also the Mitsui Professor of Economics at M.I.T.


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