THE ROLE OF CAPITAL AND TECHNOLOGY IN ECONOMIC GROWTH

Abstract

This thesis is an empirical analysis of the growth experience of the East Asian economies of Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand for the period 1976-90. Using a neoclassical growth accounting framework, it is found that technical progress and physical capital accumulation are important sources of growth for these economies for the period concerned. The time period is then divided into two subperiods - 1976-82 and 1983-90. It is found that income growth decelerated in the second subperiod for most of the East Asian economies. Our results show that this is due to a decline in the growth of technical progress in the second subperiod. In the second part of our analysis, we model technical progress as a function of human capital in order to explain the decline in technical progress in the second subperiod which leads to the deceleration of income growth. Our results indicate that the slow down in technological catch-up to the leading industrial countries is the prime cause of the decline in technical progress. Our study comes to the conclusion that technical progress is an important source of growth for the East Asian economies. Moreover, a large part of technical progress is made up of technological catch-up with domestic innovation playing a small role. As catch-up slowed in the second subperiod, income growth decelerated.