The drivers of economic growth in South Asia: evidence from a dynamic system GMM approach

Mohammad Mafizur Rahman,Suborna Barua,Rezwanul Hasan Rana

doi:10.1108/jes-01-2018-0013

Abstract

PurposeThe purpose of this paper is to explore the drivers of economic growth in South Asia region for the period of 1975–2016 using the World Bank data.Design/methodology/approachPanel corrected standard error (static estimation) approach and one-step system generalised method of moments (dynamic estimation) approach are used.FindingsBoth the static and dynamic estimations indicate that energy use, gross capital formation and remittances are the main drivers of economic growth in South Asian countries. The effects of all these variables are positive and significant. The extent of the effect of energy use is much higher than that of other two variables on the economic growth. A 1 per cent increase in the growth of energy consumption can expedite the gross domestic product growth by approximately 3 per cent in South Asia. However, the key variables, such as trade, government expenditure and foreign direct investment demonstrate no significant effect.Originality/valueThe current research is original in the sense that it investigated the issue with a new data set using improved econometric techniques. Moreover, in South Asia as a whole, this kind of study is totally absent, particularly with panel data of a large number of years. Furthermore, this study has taken into account the problem of heterogeneity and the biases created by cross-section dependence, which were mostly absent in previous studies. Therefore, the findings of this research are new contributions to the existing literature.

Highlights

The concept of divergence and convergence among countries in terms of GDP per capita is currently a controversial issue as well as a recurrent question of economic thinking
The aim of this paper is to assess the existence of economic convergence among five selected Asian countries (Thailand, Singapore, Malaysia, Philippine, and Indonesia)
Concluding remarks and policy recommendations The aim of this paper is to assess the existence of economic convergence among five selected Asian countries (Thailand, Singapore, Malaysia, Philippine, and Indonesia)

Summary

Introduction

The concept of divergence and convergence among countries in terms of GDP per capita is currently a controversial issue as well as a recurrent question of economic thinking. According to the early growth theories, economic integration was meant to allow for an equalization of growth rates while reducing the income gap (Solow, 1956; Swan, 1956; Mankiw et al, 1992; Barro and Sala-i-Martin, 2004; Cieslik and Wcislik, 2020). Regardless of the difference in the initial per capita income of economies, richer and poorer countries may converge . Starting with the endogenous growth theories (Romer, 1986; Lucas, 1988) and followed by the JEL Classification — C32, E10, 041 © Cosimo Magazzino, Marco Mele and Nicolas Schneider.

Objectives

Findings

Conclusion