The debate about the sources of growth in East Asia after a quarter of a century: much ado about nothing

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

ACDE Trade & Development Seminars

Date & time

Tuesday 29 August 2017
2.00pm–3.30pm

Venue

Seminar Room C, Coombs Building, Fellows Road, ANU

Speaker

Jesus Felipe, Asian Development Bank.

This paper reviews what the profession has learned during the last 25 years about East Asia’s growth using growth accounting exercises and estimations of production functions. The publication of Alwyn Young’s (1992, 1994, 1995) and Jong-ll Kim and Lawrence Lau’s (1994) studies, and Paul Krugman’s (1994) popularisation of the ‘zero total factor productivity growth’ thesis, led to a very important debate within the profession. The paper demystifies this literature by pointing out a major methodological problem inherent in these approaches. This is that the variables used, namely, output, employment, the stock of capital, and the factor shares, are related definitionally through an accounting identity in value terms. As a consequence, results that are believed to reflect a true technological or production relationship are no more than the outcome of manipulating this identity. We show that total factor productivity calculated with value data is not a measure of productivity. We conclude that the debate about the sources of growth in East Asia was much ado about nothing.

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