East Asia's growth: technology or accumulation?

G. CHRIS RODRIGO [*] Krugman, building on the work of Alwyn Young, has argued that hypergrowth in East Asia derives mostly from factor accumulation, owing little to technological change. Yet this explanation is at odds with what analysts of technological change have to say about technology acquisition in these countries. This article examines the Young-Krugman thesis and argues that the problem lies in the misconception of technological change as distinct from accumulation. The critique is taken further by means of a review of the multifaceted way that technology raises the productivity of labor. It is argued that technology is carried not as disembodied knowledge, but as techniques hard-coded in physical devices and structures, by patterns soft-coded in human and organizational capabilities and business-friendly institutions, formal and informal. These operate as symbiotic complements, not separable substitutes as assumed in conventional theory. These arguments are supplemented by perspectives introduced from the technology lit erature. Since the respective roles and relationship between accumulation and technology are scrutinized, the analysis provides important policy conclusions on the value of East Asian growth strategies. (JEL O3, O4, O53) I. ORIGIN OF THE "ACCUMULATIONIST" ARGUMENT The role of technological change in the "miracle growth" of South Korea, Taiwan, Hong Kong, and Singapore has generated a great deal of interest in recent years. This dates from the appearance of Young's (1992, 1994, 1995) studies of the sources of growth in these East Asian newly industrializing economies (EA-NIEs), about the same time as the World Bank's (1993) "East Asian Miracle" study. Young finds that the impressive growth of the EA-NIEs can be explained mostly by measurable factor inputs of capital and labor, education, and structural change. Apart from these "accumulation" components, the other contributor to economic growth is efficiency or technical progress, measured by the growth residual of total factor productivity (TEP). Young finds this component to be zero or near zero for most EA-NIEs. Young measures "technical change" in the EA-NIEs as total factor productivity growth (TFPG), computed from a two-level, value-added translog production function using the standard Divisia index. TFPG is computed as the residual of output growth that cannot be explained by the value-share-weighted contributions of capital and labor inputs. This procedure is exactly equivalent to separating output growth into movements along the production function predicted by factor growth inclusive of various adjustments, and shifts of the production function that are usually identified as "disembodied technical change." Young (1994) begins his analysis with a comparison of average per capita output growth for 118 nations in the Summers and Heston Mark V data set for the period 1960-85. As expected, the EA-NIE four appear right at the top of the table, with approximately 6% annual growth each, beaten only by diamond-rich Botswana. But when these figures are adjusted for labor participation to yield labor productivity growth (LPG) as output per unit labor, the growth rates fall by around 1%, ranging from 4.3% for Singapore to 5.5% for Taiwan. The fall in the growth rates derives from rising labor participation rates for the EA-NIEs, which are extraordinarily high in the 1960-85 period. The contribution of capital accumulation to productivity is greater, since the EA-NIEs sustained high rates of investment to GDP, rising from around 10-15% in 1960 to 30-40% up to 1985, except for Hong Kong alone, where it was around 20%. Computation of TFPG yields 2.5% for Hong Kong, 1.4% for Korea, 1.5% for Taiwan, and 0.1% for Singapore for the 1970-85 period. Young argues that on this measure, only Hong Kong retains its stellar ranking in relation to other developing countries. Young (1995) repeats the analysis in more detail for the EA-NIEs and obtains substantially the same results. …