Sources of East Asian Growth: Some Evidence from Cross-country Studies

What are the sources of East Asian growth? This paper analyses the sources of East Asian growth by using the cross-country data sets and utilising the two standard empirical methodologies, growth accounting and regressions. This approach enables examination of the experiences of East Asian countries on a comparative perspective and, thus, complements the detailed industry or case studies at a country level.

An overview of East Asian economic growth is first presented by attributing per worker GDP growth to input accumulation and productivity growth. The role of initial conditions or policy and environmental variables is then examined using cross-country regressions in explaining the output growth rates and to investigate the contribution of each determinant. East Asian growth is reconsidered based on the empirical results of the previous sections, focusing particularly on the role of openness and institutions. The final section summarises the results and discusses the issues to be addressed by country studies.

Findings include:

• growth accounting analysis confirms the importance of physical capital accumulation for the spectacular performance of East Asia
• while total factor productivity growth (TFPG) of East Asia seems to be only moderate compared with developed countries, it is relatively high and sustained compared with other developing regions
• cross-country regressions and the decomposition of regional output growth reveals the quantitative importance of policies, such as openness and institutions, in distinguishing East Asia from other developing regions, such as Latin America or Sub-Saharan Africa
• the success of East Asia relative to developed regions can be attributed to the “convergence” effect, which has not been fully exploited due to differences in policies and institutions
• differences in policies and institutions are also useful for understanding the cross-country growth differential within the East Asian region, with the role of institutional quality being quantitatively the most important
• a significant portion of above average performance of Singapore, Hong Kong, and Taiwan and below-average performance of Philippines and Indonesia are explained by the institutional quality alone
• if the possibility that openness affects growth not only directly but also indirectly by improving institutional quality is allowed for, then the quantitative importance of openness in explaining growth becomes much more pronounced

The paper concludes that evidence seems to indicate that openness is the most important factor behind EastAsian growth