For one thing, nearly everyone who wanted to work in Singapore or South Korea was already working. The labor force could not be doubled again. Nor could the economies afford to double their physical capital stock again. But and here s the kicker even if they could redouble their labor and capital inputs, diminishing marginal productivity would kick in. As the economies moved further along their production functions by increasing only one or two inputs, the production functions become flatter.
Additional inputs produce smaller gains in output.
And, Krugman noted, the Asian Tigers were not increasing factor productivity. The variable A in the production function wasn t rising. Krugman s predictions provoked a firestorm of criticism. After the financially induced crash of the Asian economies, however, more people have paid attention to the point Krugman was making. As output grows, redoubling it is tough.