Accounting for Agricultural Decline with Economic Growth in Taiwan
In this paper we propose an empirical model to decompose the evolution of the agricultural GDP share of Taiwan into three components: price changes, factor endowment changes and technological change. The full sample period is 1967 to 1997. The data were first tested to assess whether the time series are nonstationary and cointegrated. After confirming their nonstationarity and cointegrated relation- ship, we then employ an error correction model (ECM) in the empirical estimation to capture the dynamic as well as long-run equilibrium relationship among those economic variables. The results suggest that relative prices have a positive influence on the share of agriculture in GDP in both the long-run and the short-run. An increase in capital per unit of labor, on the other hand, is associated with a smaller agricultural share. This result is consistent with the Rybczynski Theorem. Technical change has been biased in favor of this sector. The strong negative impact of the change in factor endowments seems to dominate any possible positive effect of relative prices and technical change. This result makes a strong case for a Heckscher-Ohlin type model as a basis of understanding the development of the Taiwanese economy.
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