Measuring the Miracle: Market Imperfections and Asia's Growth Experience

FRB of San Francisco Working Paper No. 2006-17

42 Pages Posted: 26 Jul 2007

See all articles by John G. Fernald

John G. Fernald

Federal Reserve Bank of San Francisco

Brent Neiman

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2006

Abstract

The newly industrialized economies (NIEs) of Asia are the fastest-growing economies in the world since 1960. A clear understanding of their rapid development remains elusive, with continuing disputes over the roles of technology growth, capital accumulation, and international trade and investment. We reconcile seemingly contradictory explanations by accounting for imperfections in output and capital markets. For instance, in Singapore, growth-accounting studies using quantities (the primal approach) find rising capital-output ratios and a constant labor share; but studies using real factor prices (the dual approach) find a constant user cost. We provide evidence that favored firms reaped economic profits and received preferential tax treatment, subsidies, and access to capital - market imperfections that are difficult to capture when implementing the dual approach. Further, declining pure profits can reconcile the constant or rising labor shares in revenue in the NIEs with theories of international trade that predict falling labor shares in cost. We provide empirical support for the quantitative importance of profits and heterogeneous user costs, describe the two-sector dynamics, and derive measures of technology growth, corrected for the imperfections that we quantify. We then discuss implications for broader disputes about Asian development.

Suggested Citation

Fernald, John G. and Neiman, Brent, Measuring the Miracle: Market Imperfections and Asia's Growth Experience (May 2006). Available at SSRN: https://ssrn.com/abstract=1003052 or http://dx.doi.org/10.2139/ssrn.1003052

John G. Fernald (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

Brent Neiman

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/brent.neiman/index.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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