South Asian Journal of Global Business Research

Purpose – It is generally agreed that policy reforms have been more successful in China than in South Asia. The purpose of this paper is to argue that the relative success of China can be explained by the differences in initial conditions and in the design and sequencing of policies. The reform path followed by China placed reform of agriculture and rural light industry ahead of economic liberalization policies. South Asia, on the other hand, followed an opposite sequence with macroeconomic, trade, and industrial reforms coming ahead of agriculture and institutional reforms. This paper also finds that economic policies have mattered in South Asia and it develops an unfinished reform agenda comprising mainly the so-called second generation reforms which is necessary to propel South Asia to a higher growth trajectory.

Design/methodology/approach – The paper argues that the difference in economic performance between China and South Asia in the post-reform period can be explained by the differences in initial conditions and the design and sequencing of policies.

Findings – This paper finds that economic reforms have been more successful in raising economic growth and reducing poverty in China than in South Asia because of differences in initial conditions and the design and sequencing of reforms. Going forward, South Asia needs to focus on the implementation of the so-called second generation reforms (agriculture, industrial, and the more microeconomic institutional reforms) more vigorously. This will, however, pose a serious challenge to the countries because these reforms generate benefits only in the longer term and therefore require a wider political consensus for their implementation. Yet without these reforms, sustained higher economy growth in the future and catch-up with East Asia will not be possible.

Originality/value – The paper argues that difference in economic performance between South Asia and China can be partially explained by the way in which they designed their reform paths and it also develops a reform agenda that South Asian countries could implement to improve their economic performance. Hence the value of the paper is for both scholars and policy makers at large.