TOTAL FACTOR PRODUCTIVITY AND EAST ASIA'S GROWTH

Abstract

Much attention has been given to East Asian economies for their rapid and sustained economic growth and excellent export performance in the world markets in the postwar period. Such achievements were especially impressive compared to the experience of other developing countries. In the past two decades or so, studies on the relative contributions of factor inputs and non-factor-inputs (total factor productivity) to growth had been very numerous in the empirical literature on economic growth. Based on the survey of the existing literature, this study helps to throw some light on the relative importance of the contributions of factor inputs and total factor productivity to growth in the context of four high performing East Asian economies, viz. South Korea, Taiwan, Singapore and Hong Kong. These economies are of particular interest to us as all of them had been unique among low- and middle- income countries in having high and persistent growth for the last few decades. The purpose of the present study is to examine the role of total factor productivity change in the course of economic growth in these economies. The period covered for the entire study is 1955-91. It was found that rapid rates of total factor productivity growth in the countries under study were related to their rapid growth of exports. The findings from the various studies that examined the role of trade policies on total factor productivity lent strong support to the hypothesis that significant productivity improvement can be realized from trading in world markets. The link between total factor productivity growth and exports was due to factors such as economies of scale and capacity utilization influenced by the intensity of demand which may had accounted for a high level of productivity achieved after a short period of export orientation. A more crucial explanation was that exports permitted, through a variety of mechanisms, the acquisition of knowledge as reflected in technical progress. This provided the ability to move rapidly to a new and higher production frontier, a phenomena known as productivity-based catching up. Studies of sources of growth and productivity in these East Asian economies had also made reference to the effects of human capital accumulation, capital composition and shifts of resources among industries or sectors with different productivity levels on the aggregate productivity levels of the economy.