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Managing Openness
Table 18.1. Factor Intensities of Indian Exports and Domestic Production, Selected Years, 1962–2008 percentage of total Year
Natural resources
Unskilled labor
Technology intensive
Human capital intensive
All countries
2008 2000 1990 1970 1962
46.5 39.7 52.1 59.9 62.9
16.8 24.7 31.5 27.0 33.3
20.3 15.4 7.4 4.5 1.6
16.4 14.2 8.9 8.6 2.2
Domestic production
2008 2004
49.6 47.1
9.0 9.8
25.3 25.9
16.0 17.2
Old OECD
2008
36.6
14.2
26.7
22.5
High-income East Asia
2008
64.1
8.7
17.7
9.4
China and Hong Kong SAR, China
2008
83.4
2.9
8.9
4.8
Sources: Authors’ calculations based on UN Comtrade (database), United Nations, http://comtrade.un.org.
Re 12.7 trillion in the national accounts). At least part of the discrepancy would most likely be explained by problems in coverage: the ASI probably underrepresents smallscale industry in the informal sector. Because this sector accounts for 80 percent of nonfarm employment in India, the true share of unskilled labor–intensive production is probably much higher than shown in the ASI data. If the “missing” value added in the survey is added to unskilled labor–intensive industries, their share rises to 20 percent, and sophisticated processes now produce 38 percent of domestic output, equal to their share in exports. Thus, from the limited data available, we cannot conclude that exports are more sophisticated goods than those produced for the home market. Possibly a finer classification of goods distinguishing between those produced for exports and those for the home market within categories under the three-digit SITC or International Standard Industrial Classification (ISIC) could have shown that televisions for sale in India, for example, are less sophisticated than televisions exported by domestic producers. It has to be noted, though, that the composition of India’s exports differs strongly between regions. India’s exports to Europe, Japan, and the United States (the old OECD) are fairly diversified, but exports to China and Hong Kong SAR, China, are narrowly based on just two product categories. In its exports to higher-income East Asia (Indonesia; Korea; Singapore; Taiwan, China; and Thailand), India provides natural resource–based inputs to the manufacturing powerhouses, but it is also increasingly integrated into production networks for electrical goods, electronics, car parts, and machinery. A large share of India’s exports to China and Hong Kong SAR, China (more than 60 percent), consists of mineral ores and woven fabrics using natural resources and unskilled
labor–intensive production, respectively. Tobacco constitutes an impressive 43 percent of what high-income Asian countries buy from India, but technology and human capital–intensive goods make up 27 percent of the total. In contrast, nearly 50 percent of Indian exports to old OECD countries consist of products using relatively more technology and human capital.6 Growth in exports in the 1990s was predominantly in exports of technology and human capital–intensive production. They grew by around 17 percent per year as against 9 percent growth for all exports (see table 18.2). In contrast, export growth in the 2000s was much more balanced between sophisticated goods and goods more in line with India’s static comparative advantage, natural resources and unskilled labor. In the 2000s, however, services exports with arguably much higher human-capital intensity took off with growth of 18 percent per year. The sources of global trade growth provide no strong reasons for export pessimism. In recent years before the global crisis, high-income country imports have grown faster than GDP, driven by differentiation of goods and outsourcing of some elements of production. Developingcountry exports, in contrast, have risen faster than global GDP because of continuing economic integration, fragmentation of production, and specialization in globalized production networks. The forces that drove these developments before the global crisis continue to operate. India stands to benefit from these developments, because its integration into East Asian production networks is still in its infancy and new opportunities arise as China moves up the value chain. The most hopeful recent development is the emergence of India as a hub for the production of cars and car components for export. Hyundai and Suzuki already export an important share