Diminshed Returns? The Role of Savings and Investment Rates in East Asia's Miracle
The causes of growth in East Asia remain controversial despite substantial empirical research. In this paper I adopt the neoclassical growth model as the maintained hypothesis, and decompose growth into the exogenous variables of the neoclassical model. It is shown that the role of increased savings rates (or net investment rates) in the East Asian economies has been a minor one. Specifically, the increases in savings rates from 10% to over 30%, can only account for around 1 percentage point of growth in the region. The results contrast with a number of growth accounting studies which have attributed the success of the East Asian economies to their high savings rates.
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