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Potential Growth in Asia and Its Determinants: An Empirical Investigation

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  • Matteo Lanzafame

    () (Department of Economics, University of Messina, Italy)

Abstract

This paper contributes to the literature on growth in Asia in several respects. I provide estimates of potential growth for 21 Asian economies using an aggregate supply model with time-varying parameters and a Kalman filtering methodology. My estimates indicate that the actual growth slowdown experienced by many of these economies in the 2000s is associated with a falling trajectory in potential growth. Relying on Bayesian model averaging, I select robust determinants of potential growth and find that the latter is driven by the technology gap, trade, tertiary education, and institutional quality, as well as by working-age population growth. Effective reforms in these areas can help counterbalance declines in potential growth in Asia. I also investigate the relationship between business cycle features and potential growth, finding that higher volatility in actual growth has significantly negative effects on potential growth. Thus, stabilization policies can have beneficial effects on Asian economies’ long-term growth performance.

Suggested Citation

  • Matteo Lanzafame, 2016. "Potential Growth in Asia and Its Determinants: An Empirical Investigation," Asian Development Review, MIT Press, vol. 33(2), pages 1-27, September.
  • Handle: RePEc:tpr:adbadr:v:33:y:2016:i:2:p:1-27
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/ADEV_a_00070
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andrew Burns, 2016. "Potential Output in Asia: Some Forward-Looking Scenarios," Asian Development Review, MIT Press, vol. 33(2), pages 28-55, September.
    2. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 81568, University Library of Munich, Germany.

    More about this item

    Keywords

    Asian economies; Kalman filter; potential growth;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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