Joshua SheaVollrath

China Vs. Russia

In my essay I will argue why institution is more important than geography. China has had some of the

most rapid growth in the world in the past decade. China's growth rate is 10.4% while Russia's is 4.5% in

2010. China is more than doubling Russia's growth.

Both countries have had or still have communist regimes. China has had a more competitive

environment due to how the government is set up. China is set up by regions (m-form). The regions

allow the promotion of growth so that its government officials can gain ranks and earn more money.

While Russia is only one body which controls all of its major companies (u-form). Competition is not

presented in this model which leads to growth being stagnant or a very small percent.

We can also see how Russia and china differ when we look at corruption. China was rank 70 which tells

us that the country is very corrupt. Russia comes in at 127. Now we can see why china has more growth.

Their country officials take less of their countries GDP which in turn allows for higher percent GDP

growth. Neither counties are perfect in corruption but there is a stark difference. We can also see how

evidence of corruption through the gini coefficients. China’s gini coefficient in 2009 was 42.1 while

Russia’s was 40.1. This shows that the countries are corrupt and a small percent of the population is

getting a large percent of the money. This is evident in china with 90% of government officials being

millionaires. We can also see this in Russia with the oligarchs and president owning much of the market.

We can also look at property rights to describe why china has had more froth than Russia. De Soto

stated the importance of property rights and how dead capital can freeze up a lot of the countries

assets. China's property right index is 5.5 while Russia's is 4.5 another car agora that China's institution

leads Russia in. With more secure laws on property people have the ability to move capital in the market

Joshua SheaVollrath

and to also gain capital.

Foreign direct investment can also lead to higher GDP growth rates. China has lead most countries in the

world in FDI for years. China had 243,703,434,588 while Russia had 43,167,700,000. China has 200

billion dollars more dollars flowing into their economy in just one year. This can be explained by their

corruption index. China has a relatively lower corruption coefficient at 70 than Russia's 127. This affects

the amount of FDI greatly. Countries will invest more money into the country with lower corruption

rates or regions that promote less corrupt behavior because they know that their money will be put to

better use. In the lower corrupted countries there is more chances of the investments having positive

returns while investing money in countries like Russia is very discouraging.

Geography does matter but not as important as the infrastructure of the country. The reason why I state

this is because both of the countries have strong control over their resources. While china is majorly

endowed in agriculture Russia is endowed in energy ex (fossil fuels). Both are hug countries with large

amounts of land and people. China is also next to a body of water which has proven to induce economic

activity in those regions.

Where we see that the institution is more important is when we take a look at china. China uses the

most resources, but they are constantly becoming more efficient at using them. It is because of the

work of the institution the encouragement of competition that has made geography and natural

resources important. Russia also has large resource endowments. Russia has 30% of the world’s natural

resources in the entire economy. Russia has all these resources that could make them an economic

power or giant, but because the government hasn’t worked efficiently they have not reaped the

benefits. Russia hasn’t tapped into many of these resources yet. They could gain access to them if they

Joshua SheaVollrath

make habitable working conditions near these resources for example roads, houses, and other

community systems. Other problems are government not being able to pay for repairs, and government

regulations have held them back. Also inflation has caused their money to be week so they have had

trouble trading in the open market. The institution in Russia and China are quite different. Russia is not

as competitive as china and the government hasn’t acted appropriately to gain rewards from FDI or their

natural resources.

Joshua SheaVollrath

Work Cited

Korabik, Kevin M. "Russia's Natural Resources and Their Economic Effect." Russia Contains over 30% of All the Natural Resources in the World. Until Just Recently, after the Fall of Communism, These Resources Were Primarily Used by the Former Soviet Union. Now That Communism Has Fallen, and the Russian Economy Is in Ruins, Th. N.p., n.d. Web. 05 May 2014. <http://www.ems.psu.edu/~williams/russia.htm>.

"China Outpacing Rest of World in Natural Resource Use - UNEP." China Outpacing Rest of World in Natural Resource Use - UNEP. N.p., n.d. Web. 05 May 2014. <http://www.unep.org/newscentre/default.aspx?DocumentID=2723&ArticleID=9584>.

"GDP Growth (annual %)." Data. The World Bank, n.d. Web. 04 May 2014. <http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG>.

"Global Property Guide." Global Property Guide. Global Property Guide, n.d. Web. 05 May 2014. <http://www.globalpropertyguide.com/Europe/Russia/property-rights-index>.

"Country and Region Comparison." International Property Rights Index 2013. N.p., n.d. Web. 05 May 2014. <http://internationalpropertyrightsindex.org/compare?locations[]=China&locations[]=Russia&locations[=]=&locatoins[]=>.

"Foreign Direct Investment, Net Inflows (BoP, Current US$)." Data. The World Bank, n.d. Web. 05 May 2014. <http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD>.