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Measuring the Miracle: Market Imperfections and Asia's Growth Experience

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  • John Fernald

    ()
    (Research Federal Reserve Bank of San Francisco)

  • Brent Neiman

Abstract

A clear understanding of the rapid development of the newly industrialized economies (NIEs) of Asia remains elusive, with disputes over the roles of technology growth, capital accumulation, and international trade and investment. Most notably, alternative approaches to growth accounting yield contradictory results: Estimates using quantities of inputs and output (the primal approach) find slow TFP growth, whereas estimates using real factor prices (the dual approach) find relatively rapid TFP growth. Further, the growth accounting studies report constant or increasing labor shares in most of the NIEs, inconsistent with theories emphasizing the importance of international trade in Asia’s development. We reconcile these apparent contradictions by taking account of economically interesting imperfections in output and capital markets, such as sizeable economic profits and government-directed credit. In Singapore, where the growth accounting disparity is largest, these market imperfections essentially fostered a two-sector economy in which some firms, part of a “favored†sector, received preferential treatment and reaped economic profits. We describe the dynamics of this two-sector framework and derive measures of technology growth, corrected for the imperfections that we quantify. We then discuss implications for broader disputes about Asian development

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 785.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:785

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Keywords: Growth Accounting; Development Accounting; Asia;

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References

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Citations

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Cited by:
  1. Robert M. Townsend & Hyeok Jeong, 2007. "Sources of TFP Growth: Occupational Choice and Financial Deepening," 2007 Meeting Papers 198, Society for Economic Dynamics.
  2. Albert Bollard & Peter Klenow & Gunjan Sharma, 2012. "Online Appendix to "India's Mysterious Manufacturing Miracle"," Technical Appendices 11-75, Review of Economic Dynamics.
  3. Rod Tyers, 2008. "Competition Policy, Corporate Saving and China's Current Account Surplus," ANU Working Papers in Economics and Econometrics 2008-496, Australian National University, College of Business and Economics, School of Economics.
  4. Pete Klenow & Gunjan Sharma & Albert Bollard, 2011. "India's Mysterious Manufacturing Miracle," 2011 Meeting Papers 1176, Society for Economic Dynamics.
  5. Bigsten, Arne & Durevall, Dick, 2004. "Kenya’s Development Path and Factor Prices 1964-2000," Working Papers in Economics 142, University of Gothenburg, Department of Economics.
  6. Gita Gopinath & Brent Neiman, 2011. "Trade adjustment and productivity in large crises," Working Papers 11-9, Federal Reserve Bank of Boston.
  7. Jesus Felipe & John McCombie, 2012. "Aggregate Production Functions and the Accounting Identity Critique: Further Reflections on Temple's Criticisms and Misunderstandings," Economics Working Paper Archive wp_718, Levy Economics Institute, The.
  8. Jesus Felipe & J. S. L. Mccombie, 2007. "On the Rental Price of Capital and the Profit Rate: The Perils and Pitfalls of Total Factor Productivity Growth," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 317-345.
  9. S.M. Thangavelu & Toh Mun Heng, 2005. "Bilateral “WTO-Plus†Free Trade Agreements : The WTO Trade Policy Review of Singapore 2004," Trade Working Papers 22590, East Asian Bureau of Economic Research.

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