Working Paper: CEPR ID: DP1587
Authors: Dani Rodrik
Abstract: The controversy over the appropriate partitioning of East Asian growth into accumulation versus technical change has overlooked a fundamental indeterminacy in measurement. As a result, we cannot rule out the possibility that East Asia has in fact experienced a tremendous amount of technological progress of the labour-saving kind. Second, an index of institutional quality (drawn from work by Knack and Keefer (1995) and Easterly and Levine (1996)) does exceptionally well in rank-ordering East Asian countries according to their growth performance. A parsimonious specification containing only initial income, initial education, and institutional quality accounts for virtually all of the variation in the growth performance in the region, even when institutional quality is instrumented. Finally, the experience of Hong Kong, which has had a flat investment ratio since the 1960s, is consistent with the idea that making the transition from a low-investment economy to a high-investment economy requires a hands-on government.
Keywords: growth; TFP; East Asia; institutions
JEL Codes: F43; O30; O47; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| institutional quality (L15) | social fragmentation (F12) |
| institutional quality (L15) | economic growth (O49) |
| initial income (E25) | economic growth (O49) |
| education (I29) | economic growth (O49) |