Sources of economic growth in East Asia: a nonparametric approach

The conventional growth-accounting approach to estimating the sources of eco-nomic growth requires unrealistically strong assumptions about either competi-tiveness of factor markets or the form of the underlying aggregate production function. This paper outlines a new approach utilizing nonparametric derivative estimation techniques that does not require imposing these restrictive assump-tions. The results for East Asian countries show that output elasticities of capital and labor tend to be different from the income shares of these factors and that the growth of total factor productivity over the period 1960–95 has been an important factor in the overall growth performance of these countries. [JEL C14, O47, O53] For more than a quarter century since the early 1970s, the countries in East Asiagrew at phenomenal rates, leading observers to dub the period the “Asian Miracle. ” The rapid growth came to an abrupt end when the financial crisis hit in 1997, with many of the high-performing countries in the region falling into painful recessions and facing the distinct possibility that the miracle, if indeed there had been one, was over. Clearly the Asian financial crisis was an unprecedented event and was unfore-seen by virtually everyone. But what is more troubling is that a decline in growth in East Asian countries, even abstracting from the effects of the financial crisis, was already being predicted by some. Paul Krugman (1994) in particular, usin