Economics 121: The Macroeconomics of Development with Special Reference to East Asia

1. Economics 121:The Macroeconomics of Developmentwith Special Reference to East Asia Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.) Kwoh-Ting Li Professor of Economic Development Department of Economics Stanford University Stanford, CA 94305-6072, U.S.A. Spring 2000-2001 Email: ljlau@stanford.edu; WebPages: http://www.stanford.edu/~ljlau

2. Lecture 9 The Sources of Economic Growth in Developed and Developing Economies Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.) Kwoh-Ting Li Professor of Economic Development Department of Economics Stanford University Stanford, CA 94305-6072, U.S.A. Spring 2000-2001 Email: ljlau@stanford.edu; WebPages: http://www.stanford.edu/~ljlau

3. Introduction • Tangible capital accumulation is the most important source of growth in developing economies • Technical progress is the most important source of economic growth in developed economies • The controversy over the role of technical progress in postwar East Asian economic growth • Kim and Lau (1992, 1994a, 1994b) • Paul Krugman (1994) • The World Bank (1993) • Alwyn Young (1992, 1995) Lawrence J. Lau, Stanford University

4. Rates of Growth on Inputs & Outputs of theEast Asian NIEs and the G-5 Countries Lawrence J. Lau, Stanford University

5. The Estimated Parameters of the Aggregate Meta-Production Function Lawrence J. Lau, Stanford University

6. The Findings of Kim & Lau (1992, 1994a, 1994b) using data from early 50s to late 80s • (1) No technical progress in the East Asian NIEs but significant technical progress in the industrialized economies (IEs) including Japan • (2) East Asian economic growth has been input-driven, with tangible capital accumulation as the most important source of economic growth (applying also to Japan) • Working harder as opposed to working smarter • (3) Technical progress is the most important source of economic growth for the IEs, followed by tangible capital, accounting for over 50% and 30% respectively, with the exception of Japan • NOTE THE UNIQUE POSITION OF JAPAN! Lawrence J. Lau, Stanford University

7. The Findings of Kim & Lau (1992, 1994a, 1994b) using data from early 50s to late 80s • (4) Despite their high rates of economic growth and rapid capital accumulation, the East Asian Newly Industrialized Economies actually experienced a significant decline in productive efficiency relative to the industrialized countries as a group • (5) Technical progress is purely tangible capital-augmenting and hence complementary to tangible capital • (6) Technical progress being purely tangible capital-augmenting implies that it is less likely to cause technological unemployment than if it were purely labor-augmenting Lawrence J. Lau, Stanford University

8. Accounts of Growth:Kim & Lau (1992, 1994a, 1994b) Lawrence J. Lau, Stanford University

9. Purely Capital-Augmenting Technical Progress Lawrence J. Lau, Stanford University

10. Implications of Rejection of the Hypothesis of Purely Labor-Augmenting Technical Progress • Technical progress is not simply equivalent to more labor (One thousand janitors are not equivalent to a Kenneth Arrow) • The existence of a steady state growth can no longer be assured • Capital-augmenting technical progress implies the complementarity between tangible capital and technical progress (intangible capital) Lawrence J. Lau, Stanford University

11. Production Elasticities of Capital Lawrence J. Lau, Stanford University

12. Production Elasticities of Labor Lawrence J. Lau, Stanford University

13. Degrees of Returns to Scale Lawrence J. Lau, Stanford University

14. Empirical Evidence for the Hypothesis of No Technical Progress in East Asian NIEs • Tsao (1985) and Young (1992) for Singapore • Kim & Lau (1992, 1994a, 1994b) and Young (1995) for the four East Asian NIEs • Paul Krugman (1994) • Kim & Lau (1996) extend the same finding to other East Asian economies--China, Indonesia, Malaysia, Philippines, and Thailand Lawrence J. Lau, Stanford University

15. Empirical Evidence Against the Hypothesis of No Technical Progress • Young (1992) for Hong Kong • The World Bank (1993) • Credibility of such studies undermined by restrictive maintained hypotheses such as • CONSTANT RETURNS TO SCALE • NEUTRALITY OF TECHNICAL PROGRESS & • INSTANTANEOUS COMPETITIVE PROFIT MAXIMIZATION Lawrence J. Lau, Stanford University

16. International and Intertemporal Comparison of Productive Efficiency: A Thought Experiment • Suppose all countries have the same quantities of measured inputs of capital and labor as the United States • What would have been the quantities of their real outputs? and • How would they evolve over time? WE COMPARE THEIR OUTPUTS HOLDING MEASURED INPUTS CONSTANT! Lawrence J. Lau, Stanford University

17. Hypothetical Output Levels Lawrence J. Lau, Stanford University

18. Relative Productive Efficiency(U.S.=100%) Lawrence J. Lau, Stanford University

19. The Sources of Economic Growth:Selected East Asian and Western Economies Lawrence J. Lau, Stanford University

20. The Sources of Economic Growth:Selected East Asian and Western Economies Lawrence J. Lau, Stanford University

21. Human Capital Lawrence J. Lau, Stanford University

22. Sources of Economic Growth with Explicit Inclusion of Human Capital Lawrence J. Lau, Stanford University

23. Simultaneous Capital- and Human Capital-Augmenting Technical Progress Lawrence J. Lau, Stanford University

24. R&D Expenditureas a Percentage of GDP Lawrence J. Lau, Stanford University

25. R&D Capital Lawrence J. Lau, Stanford University

26. Sources of Economic Growth with Explicit Inclusion of Human and R&D Capital Lawrence J. Lau, Stanford University

27. The Sources of Growth: Further Results with Extended Sample--Lau and Park (2000) Lawrence J. Lau, Stanford University

28. The Sources of Growth: Further Results with Extended Sample--Lau and Park (2000) Lawrence J. Lau, Stanford University

29. Sources of Economic Growth with Breaks in the Rates of Capital Augmentation (1985) Lawrence J. Lau, Stanford University

30. Sources of Economic Growth with Breaks: Sub-periods Lawrence J. Lau, Stanford University