Total factor productivity and economic growth in East Asia

• Main Author: Kidsom, Akaranant
• Published: University of Surrey 2004
• Subjects: 338.90959
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.402890

This thesis is an empirical and theoretical study of the causes in the rapid economic growth of selected East Asian economies (i.e. Japan, South Korea, Taiwan, and Thailand) during the years 1971-2000. Firstly, we set out a nonparametric estimations of the Total Factor Productivity Growth (TFPG) of the aforementioned countries. It can be concluded that the estimated TFPGs of these countries are higher than that of the US. This implies that the TFP gaps between the East Asian countries and the US have narrowed. An increase in productivity of human capital-augmented labour rather than an increase in that of physical capital is suggested to be a dominant factor in explaining the rising ofTFP in the selected East Asian economies. Secondly, to quantify the extent to which the TFP gaps have narrowed, we estimate the relative TFP levels of the selected East Asian countries and the US. Both parametric and non-parametric estimations show that the US remains as the country with the highest TFP level. However, apart from South Korea, the rate of change in the US's TFP level was lower than the catching-up East Asian countries especially Japan. Thus, the economic growth miracle of the selected East Asia economies might be explained by the productivity convergence between the countries and the advanced country (i.e. the US) rather than just input accumulation. We construct a theoretical model to explore differences in TFP levels across countries using a framework based on interaction between labour unions, government policies, and TFP levels. Model simulation suggests that the presence of monopoly rights reduce the productivity level by 2/3. Moreover, an increase in the competition from substitute products helps tackle the resistance from insiders yielding higher productivity of the incumbent firms. Nonetheless, with a strong labour union of an industry, the introduction of new firms (with the same output) competing in the market may have an adverse effect on the firms' productivity level. Lastly, to promote an increase in the productivity level of a nation, a policy encouraging a wider choice of final products offered to consumers is recommended.