Why the Tigers Roared: Capital Accumulation and the East Asian Miracle

Abstract

Recent growth accounting studies of Hong Kong, Singapore, Taiwan and South Korea have found that the Solow residuals in these economies were relatively small. Given the high capital contributions, these results are often interpreted as evidence that factor accumulation, savings and investment were central to the rapid growth experience. This paper develops an alternative method of analyzing these data, combining growth accounting methods with the linearized neoclassical growth model, of Mankiw, Romer and Weil (1992). The method explicitly quantifies the extent to which increases in productivity, as measured by the Solow Residual, induced capital accumulation in these economies. It shows that in Hong Kong, Taiwan and South Korea, productivity growth contributed between 1/2 and 2/3 of the growth in GDP per worker, over a 20-year period.

Keywords: Convergence, growth theory, endogenous growth, growth accounting, development, East Asia.

JEL Classification: O00, O1, O30, O47, O53