Productivity growth in East Asian manufacturing: a fading miracle or measurement problem?

Abstract

Despite the intensive debates on the East Asian economic miracle that persisted during the last decade, the verdict on the source of output growth is inconclusive. There can be no dispute over the importance of total factor productivity (TFP) growth in the process of economic development and raising the level of living standards. But, the question of whether TFP growth played a significant role in East Asian economic growth remains contentious, especially in Singapore's case. This paper provides an updated review on productivity growth in the East Asian manufacturing and that of Hong Kong, Japan, Korea, Singapore and Taiwan, and recommends options for further research to improve understanding on the issue of TFP growth in East Asian manufacturing. Copyright # 2005 John Wiley & Sons, Ltd. To uncover the source of the East Asian economic miracle, the debates on productivity growth in East Asia have been widespread since the 1990s. Due to differences in data, methodology and sample period selected, recent empirical TFP studies have, not surprisingly, revealed mixed results. In an influential paper by Young (1995), he pointed out that the spectacular economic performance in East Asia was not as impressive as previously thought and claimed the economic success was nothing more than intensive factor accumulation. Using growth accounting and breaking down output growth into components that can be attributed to the observable factors of the growth of capital stock and labour force, Young showed that TFP growth (or Solow residual) in East Asian countries was comparable with those of developed economies. Young's finding further predicted that high economic growth is unlikely to be maintained in East Asian economies due to scant progress in the level of TFP. While the findings of Kim and Lau (1994), Krugman (1994), and Collins and Bosworth (1996) are generally consistent with Young's, Chen (1997) raised concerns over possible