THE SOURCES OF ECONOMIC GROWTH OF THE NEWLY INDUSTRIALIZED COUNTRIES ON THE PACIFIC RIM

The aggregate meta-production function approach is applied to a sample of nine countries — the Group-of-Five countries (France, West Germany, Japan, the United Kingdom and the United States) and the East Asian Newly Industrialized Countries (Hong Kong, Singapore, South Korea and Taiwan). It is found that the hypothesis of a single meta-production function applying to all nine countries cannot be rejected. However, it is also clear that the two groups of countries operate on very different parts of the same production function. The estimated values of the production elasticities of capital for the Newly Industrialized Countries are much higher and those of the production elasticities of labor much lower than the corresponding elasticities of the Group-of-Five countries. The local degrees of returns to scale are approximately constant for the Newly Industrialized Countries but significantly decreasing for the Group-of-Five countries for most of the postwar period.

The results reaffirm the Boskin and Lau (1990) finding that technical progress can be represented as purely capital-augmenting. However, the hypothesis that there has been no technical progress (or increase in efficiency) in the Newly Industrialized Countries during the postwar period cannot be rejected. By far the most important source of economic growth of the Newly Industrialized Countries is capital accumulation, accounting for more than 80 percent of their economic growth, in contrast to the case of the industrialized Group-of-Five countries, in which technical progress has played the most important role, accounting for between 45 to 70 percent of their economic growth.

An international comparison of the productive efficiencies of the Group-of-Five countries and the Newly Industrialized Countries indicates that the technologies of the two groups of countries are not converging, in the sense of producing increasingly similar quantities of measured real outputs given the same quantities of measured inputs. It is conjectured that in order for the Newly Industrialized Countries to catch up with the Group-of-Five countries in terms of productive efficiency, a great deal more investment in Research and Development is needed.