Factors Affecting Manufacturing and Agricultural Productivity Trends Among Asian Countries

Abstract

Manufacturing productivity has been increasing faster relative to agricultural productivity in a number of Asian countries in recent years. The literature provides two hypotheses for this phenomenon. First, increases in physical capital investment led to manufacturing productivity growth in many Asian countries (Tinakorn and Sussangkarn 1994). Second, greater exposure to trade and foreign direct investment contributed to improvements in manufacturing productivity (Pack and Westphal 1998). Using data from several Asian countries between 1970 and 2005, we find that OLS regressions only support the first hypothesis. However, after we account for the endogeneity between openness and FDI inflows, we find evidence supporting the second hypothesis. These results have various implications for trade and FDI policies.