NBER WORKING PAPER SERIES THE TYRANNY OF NUMBERS: CONFRONTING THE STATISTICAL REALITIES OF THE EAST ASIAN GROWTH EXPERIENCE Alwyn Young Working Paper No. 4680 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 1994 This paper was supported by a grant from the MIT-NTU Collaboration Agreement and an NBER Olin Fellowship. I am indebted to Chris Paxson for providing data tapes on Taiwan, to Chan Wing-Kwong, Chao Bi-Tsyr, Ho Kun-Lon, Peter Kisler, John Sharon and Woo Hyun-Sook for help in gathering and entering data, and, most especially, to Ho Veng-Si and Yang Shin-Kyu for extraordinary research assistance Thanks are due the govemments of Hong Kong, South Korea and Taiwan for providing unpublished data and answering queries Special appreciation is due the government of Singapore which, while disagreeing with most of my analysis and all of my conclusions, has generously supplied me with both published and unpublished data on the Singaporean economy. This paper is part of NBER's research programs in Growth and Intemational Trade and Investment. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research
NBER Working Paper #4680 March 199 THE TYRANNY OF NUMBERS CONFRONTING THE STATISTICAL REALITIES OF THE EAST ASIAN GROWTH EXPERIENCE ABSTRACT This paper documents the fundamental role played by factor accumulation in explaining the extraordinary postwar growth of Hong Kong, Singapore, South Korea and Taiwan. Participation rates, educational levels and (with the exception of Hong Kong) investment rates have risen rapidly in all four economies. In addition, there have been large intersectoral reallocations of labour, with(again, excepting Hong Kong) non-agricultural and manufacturing employment growing one and a half to two times as fast as the aggregate working populati Thus, while the growth of output per capita in these economies has averaged 6%to 7% per annum over the past two and a half decades, the growth of output per effective worker in the agricultural sector of these economies has been only 3% to 4% per annum. If one then lows for the doubling, tripling and even quadrupling of the investment to GDP ratio in these economies, one arives at total factor productivity growth rates, both for the non-agricultural economy and for manufacturing in particular, which are well within the bounds of those experienced by the OECD and Latin American economies over equally long periods of time While the growth of output and manufacturing exports in the newly industrializing economies of East Asia is virtually unprecedented, the growth of total factor productivity in these economies s Alwyn Young Sloan School of Management Massachusetts Institute of Technology 50 Memorial Drive Cambridge, MA 02139 and NBEr
L Introduction This is a fairly boring and tedious paper, and is intentionally so. This paper provides no new interpretations of the East Asian experience to interest the historian, derives no new theoretical implications of the forces behind the East Asian growth process to motivate the theorist, and draws no new policy implications from the subtleties of East Asian govermment intervention to excite the policy activist. Instead, this paper concentrates its energies on providing a careful analysis of the historical patterns of output growth, factor accumulation and productivity growth in the Newly Industrializing Countries of East Asia, i c. Hong Kong. Singapore, South Korea and Taiwan. Tables 1-1 and 1-2 and figure 1 below present some basic information on growth in the NICs drawn from national accounts and census sources. As seen in table 1-1. the extraordinarily rapid and sustained growth of output per capita in all four economies, averaging some 6% to 7% per annum for two and a half decades, is truly remarkable. It is this record of growth, along with its apparent association with the rapid growth of manufactured exports, that has led most economists to believe that productivity growth in these economies must be extraordinarily high, particularly in their manufacturing sectors. This view, however ignores an equally remarkable record of factor accumulation As table 1-1 shows one important area of factor accumulation has been labour input. the rapid post-war decline in birth rates(changing dependency ratios ) and rising rates of female labour force participation have led to a substantial rise in the aggregate participation rate in each The appendix provides a full description of sources. All growth rates reported in this paper are logarithmic, rather than geometric, growth rates. The labour force estimates for Korea and Taiwan exclude their large (predominantly conscript)armies, whose measured output (in the form of wages) is comparatively small. Section VI below examines the sensitivity of the results reported in this paper to the inclusion/exclusion of military personnel
of the NICs. In moving to measures of output per worker, rising participation rates remove an average of 1% per annum from the per capita growth rate of Hong Kong, 1.2% and 1.3%per annum from Korea and Taiwan, respectively, and a stunning 2.6% per annum( for 24 years!) from the growth rate of Singapore. Intersectoral transfers of labour have also been extremely mportant Thus, removing agriculture from the analysis lowers the growth rate of output per rker in Taiwan and South Korea by 6% and. 7% per annum, respectively, reflecting the rapid decline in the share of agricultural employment in total employment in both economies. 3 Although the growth of manufacturing output has been unusually rapid in these economies, so has the growth of manufacturing employment. Once one accounts for the transfer of labour into manufacturing one finds, surprisingly, that, as regards labour productivity growth, manufacturing in both Singapore and Taiwan actually underperformed the aggregate economy. apital input has also grown rapidly in the NICs. As shown in figure 1, although the investment to GDP ratio has remained roughly constant in Hong Kong, in the other NCs it has risen substantially over time. In Singapore, the constant price investment to GDP ratio, at 11% in 1960 had reached 38% by 1980 and an extraordinary 47% by 1984, after which it declined substantially, only to begin another rise in the late 1980s. In South Korea, investment rates, which were around 5%(in constant prices)in the early 1950s, exploded up to 20% in the mid-60s, reached 30% in the early 1980s, and were approaching 40% by 1991. Finally, in Taiwan, the constant price investment to gDP ratio, at around 10% in the early 1950s, grew teadily to a high of 27% in 1975, after which it fluctuated around a value of 20%. Changes in age specific male participation rates are minimal in all four economies, while with the exception of Hong Kong(where they fell), reported hours of work have remained roughly constant. This suggests that the increase in participation is genuine, and not some statistical artifact. This intersectoral transfer was strongest in Taiwan during the 1970s, when the difference in the growth of output per worker was 2.2%(5.7% vs 3.5%), and in Korea during the 1980s, when the difference in growth rates was 1.6%(6.7% vs 5.1%6)
Table 1-1: Growth Rates(%) Hong Kong(1966-1991) Singapore(1966-1990) D N-D N-D GDP per Capita: 73 16 57 8.5 19 GDP per Worker: 73 2.6 47 8.5 4.5 Excluding agriculture 2.8 NA 8.6 4.6 4.0 Manufacturing NA 1.3 NA 10.1 62 39 Δ Participation Rate: 38→49 27→51 South Korea(1966-1990) Taiwan(1966-1990) D N-D N D N-D GDP per Capita: 8.5 1.8 69 8.6 18 6.8 GDP per Worker: 8.5 57 Excluding Agriculture 5.4 5.0 4.6 49 Manufacturing 14.1 63 78 10.8 Δ Participation Rate 27→36 28→37 N=Numerator, D= Denominator NA The Hong Kong govemment has yet to develop constant price estimates of GDP by sector. GDP measures are at market prices, ie including indirect taxes and import duties. Table 1-2: Educational Attainment of the working Population(%) Hong Kong Singapore South Korea Taiwan 1966 1991 19661990 1966 990 1966 1990 None 192 5655.1 31.1 17.0 4.5 Primary 53.6 22.9 28233742418.557.2280 Secondary+27.71415866.326575:025.867.6 Notes: Self taught are included under primary. Hong Kong, Korean and taiwanese data refer to highest level of educationattended"rather than completed. All percentages calculated net of those reported as
g=
Human capital accumulation in the East Asian NiCs has also been quite rapid. As shown in table 1-2 above, over the past two and a half decades the proportion of the working population with a secondary education or more doubled in Hong Kong and Taiwan, tripled in Korea and quadrupled in Singapore. By 1990/1991, some 18% to 20% of the working population in each economy had some tertiary education. In weighting labour input by sex, age and educational haracteristics(discussed further below), I have found that the improving educational attainment of the workforce contributes to about 1% per annum additional growth in labour input in each of these economies All of the influences noted above, rising participation rates, intersectoral transfers of labour, improving levels of education, and expanding investment rates, serve to chip away at the productivity performance of the East Asian NICs, drawing them from the top of Mount Olympus down to the plains of Thessaly. In a companion paper (Young 1993), I use simple back of the envelope calculations and large international data sets to show that, as regards productivity growth in the aggregate economy and in manufacturing in particular, the NiCs cannot be considered to be strong outliers in the post-war world economy. This paper concentrates on a more careful analysis of these four economies, making use of the extensive statistical record embodied in their national accounts, population censuses, and sectoral, wage and labour force urveys methodology. Sections II-VI then provide a country by country analysis of aggregate ang on The remainder of this paper is organized as follows: Section I presents a short review sectoral total factor productivity growth. Section Vil contrasts this research with earlier work on Defined as junior college and above in Korea and Taiwan and matriculation/a levels and above in Hong Kong and singapore
productivity growth in the NiCs, while section vim summarizes and concludes An appendix provides a description of sources and some of the problems encountered in linking different data senes
I Methodology The ranslog index of totaL Factor Productivity growth Consider the translogarithmic value added production function: (2. 1)2=expla+arInk +aInL +a,f+=Br(nk) +Baln)n)+BlnK+Bn)+Blm:t+3B where K, L and t denote capital input, labour input and time, and where, under the assumption of constant returns to scale, the parameters a and Ba satisfy the restrictions: (2.2)ax+aL=1 Br+BrL= Bu+Br Br+BL =0 First differencing the logarithm of the production function provides a measure of the causes of growth across discrete time periods Q+1/=6 Q() KT) +TFP T-1) 了-L了 whe百=()+6,7-1) and where the e;'s denote the share of each factor in total factor payments. The translog index of TFP growth(TFPT- 1r provides a measure of the amount the log of output would have ncreased had all inputs remained constant between two discrete time periods. In essence, the translog production function provides a theoretical justification for the use of average factor shares and log differences as a means of extending the continuous time Divisia analysis of
productivity growth to data based upon discrete time periods To allow consideration of more finely differentiated inputs, one can assume that aggregate capital and labour input are, in tun, constant returns to scale translog indices of sub-inputs: 5 (2.4)K=expla InK,+diNk,+.+o Ink (n}2+Bn)nk2)+…+B(n L= exp(afInE1+吃lnL2+…,+a Bi(nL,+Bi(nL,(nL BL, (nL] First differencing the logarithms of these translog indices provides a measure of the growth of aggregate capital and labour input as weighted averages of the growth rates of their sub-inputs (2.5) K, (T) Li T) K(T-1) KT-1) e(m)+6(T-1) nd where the 0,'s denote the share of each sub-input in total payments to its aggregate factor. In a manner analogous to the continuous time Divisia analysis, these indices adjust for improvements in the"quality"of aggregate capital and labour input by, to a first order approximation, weighting the growth of each sub-input by its average marginal product The appropriate measure of capital and labour input is the flow of services emanating from those inputs. For labour, one can reasonably assume that the flow of services is proportional to total hours of work, i. e L, (T)=mH,(T),with With similar restrictions on parameter values. 7
