Growth Accounts of the Asian Economies

Growth Accounts of the Asian Economies

DOI: 10.4018/978-1-4666-5848-6.ch006
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Abstract

This chapter develops the growth accounts of sampled Asian countries and confirms that high rates of output growth in these countries are input driven. The analysis shows that the role of productivity growth has been minimal, accounting for at most 30% of the average rate of growth. For China, the contribution of productivity is slightly higher. These estimates reflect two important conclusions: (1) there is a need to better estimate TFP growth rates, and (2) despite the higher TFP's contribution, the hypothesis that growth in these economies are input driven cannot be rejected. Like Senhadji (2000), estimated TFPs were used to investigate deeper into sources of growth, and it was found that for China, India, and the Philippines, government spending seems to have been important. For most of the countries, it was hard to find a unilateral support for financial deepening. Alternative measures of openness to trade, however, seem to be positively associated with growth in China, Malaysia, Singapore, and India. Except for Thailand, Indonesia, and Taiwan, investment seems to have either negligible or negative growth effects. These results are not unexpected and could be due to a number of reasons: (1) some variables may only have short-run effects, (2) there could be possible multi-colinearity among the included variables, and (3) it cannot be argued that these are proper proxies of the hypothesized determinants. Further, for the short-run, neither the direction nor the magnitude of these effects can be generalized. Such issues are taken-up more seriously in the following chapters.
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Background

Growth accounting is the first and a useful step into the inquiry on sources of growth. As will be seen later in the chapter, it involves decomposing the rates of growth of output (or output per worker) into the growth rates of inputs and technology. Studies on growth accounting date back to the 1960s reflecting works of Solow (1957), Kendrick (1961), Denison (1962) and Jorgenson & Griliches (1967), amongst the others. Previous studies on growth accounting especially for EAEs surveyed earlier in this book have shown that growth rates in these countries are input driven. Tactful interpretation of the residual, the most controversial element on GAEs, is due to Solow (1957) who also provided a systematic analysis of sources of growth. Other important issues in growth accounting that must be considered are emphasized towards the end of this chapter.

The Asian sample of the aforesaid 10 countries and Solow (1957) framework, provide further support to the fundamentalists’ arguments that growth in these countries are little to do with productivity enhancement but much of it is due to factor mobility. The results imply that the high rates of growth noted in these economies are unsustainable. While the GAEs do produce preliminary insights, Senhadji (2000) has shown how the estimates from the GAEs can be used to determine the impact of variables on the long-run growth rate. Using his method (also adopted by Bosworth and Collins (2003)) it is shown that the effects of the aforesaid set of variables are significant in different countries at varying degrees. This application has shown that Senhadji’s methodology is an alternative to estimate the growth effects. Of course, similar analysis can be extended with panel data methods, but we could not obtain any reliable estimates with this approach. Interested readers may resort to Senhadji’s original paper for an application.

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