The Debate About the Sources of Growth in East Asia after a Quarter of a Century: Much Ado About Nothing

40 Pages Posted: 12 Jun 2017

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

John McCombie

University of Cambridge - Department of Land Economy

Date Written: May 2017

Abstract

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-Il Kim and Lawrence Lau’s (1994) studies, and Paul Krugman’s (1994) popularization 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.

Keywords: Accounting Identity, Dual TFP, East Asia, Growth Accounting, Primal TFP, Technical Progress

JEL Classification: O10, O47, O53

Suggested Citation

Felipe, Jesus and McCombie, John S. L., The Debate About the Sources of Growth in East Asia after a Quarter of a Century: Much Ado About Nothing (May 2017). Asian Development Bank Economics Working Paper Series No. 512. Available at SSRN: https://ssrn.com/abstract=2982882 or http://dx.doi.org/10.2139/ssrn.2982882

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

John S. L. McCombie

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

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