A New View on the Source of East Asian Economic Growth: What Made Capital Stock Accumulation So Remarkable in East Asia?"

Replacing investment shares in GDP by growth rates of capital stock, this paper first shows that cross-country regressions can explain East Asian high rates of economic growth remarkable well. The result is observationally consistent with recent growth accounting studies which proposed that rapid expansion of the East Asian economies relied principally on rapid expansion of capital stock. However, we also find that growth rates of capital stock and shares of investment had different effects on rapid expansion of the East Asian economies. In particular, we show that high rates of investment were not unusual but that low capital-output ratios were quite unusual in the East Asian economies. This empirical finding is noteworthy because it indicates that the pattern of East Asian economic growth was not necessarily extensive. We discuss that the East Asian economies have had a unique development process because they had labor-intensive industry structure at the early stage of industrialization.