GROUP 1
PRESENTATION
Growth and the
Asian Experience
TABLE OF CONTENTS
3.1 Introduction
3.2 Important Concepts
For Understanding Growth
3.3 Growth Theories
3.4 The Asian Growth
Miracle
3.5 Aspect of Economic Performance
In The “ Miracle” Economies
3.6 The Policy Matrix and Economic
3.7 Convergence of Income
Performance in South Asia
Introduction
Growth
&
Development
3.2 Important Concepts
For Understanding Growth
3.2. 1 Components of Income and Output
3.2. 2 Total Factor Productivity
3.2. 3 Economic Efficiency
3.2. 4 Technical Progress
3.2.1 Components of Income and
Output
INPUT refers to the resources or factors of production or processes used in the
production of an output.
OUTPUT is derived by combining various factors of production, which include land, capital,
and labor.
PRODUCTION FUNCTION is a useful tool for analyzing the process of economic growth. A
production function relates the inputs of the production process, such as labor (I) and
capital (K), to the output/income (Y) from the process. This relationship can be stated in a
number of ways. A general function (f) without any functional form can be stated as
Y = f (K, L)
3.2.1 Components of Income and
Output
EMBODIED TECHNICAL PROGRESS is reflected by the fact that labor forces have tended
to become more educated over time as more resources are spent on upgrading the skills
of the existing labor force and also on educating the young.
DISEMBODIED TECHNICAL PROGRESS refers to innovations or improvements in
technology or methods that increase productivity or efficiency but are not tied to any
physical form or specific factor of production.
3.2.2 TOTAL FACTOR
PRODUCTIVITY
TOTAL FACTOR PRODUCTIVITY pertains to the efficiency with which the inputs are
combined to produce output. These efficiency gains can be due to a number of factors,
including greater economies of scale, better management, marketing or organizational
abilities, shifts in production from low productivity activities to higher productivity activities
with the same amount of labor and capital, or the impact of new technology which enables
greater output to be obtained with the same capital and labor inputs.
If we call this TFP, or multifactor productivity, term A, and denote capital and labor by K and L
respectively, then the production function can be rewritten as
Y=f(K, L, A).
3.2.3 Economic Efficiency
Production Possibility Frontier (PPF) is a curve depicting the best possible combination of
goods that is produced in an economy--best in the sense that the combination utilizes all the
available inputs efficiently and minimizes waste.
Economic efficiency is boosted in a static sense (static efficiency) if firms move from inside
the production possibility frontier, say point E, toward the frontier itself, to point E’.
By the contrast with static efficiency, dynamic efficiency takes place when there is economic
growth and the scale of production increases (scale efficiencies), or production shifts from a
low productivity sector to a more productive sector.
3.2.4 Technical Progress
Embodied Technical Progress has to do with the changing
nature of the inputs into the production processes.
Disembodied Technical Progress relates to the way factors
are combined together in the workplace such as
management or organizational innovation.
3.4 The Asian Growth
MIRACLE
3.4.1 First Primary Factor: Importance of Outward 3.4.4 Fourth Principal Factor: Labor-Market
-Looking Policies and the Emphasis on Flexibility
Exports and Direct Foreign Investment Definition
Bootsrat Development
Tarrif, Import Licensing and
Import Prohibtion
3.4.5 Initial Secondary Function: Diffirence in
3.4.2 Secondary Principal Factor: Macroeconomic Initial Condition
Policies and Role of Government
3.4.3 Third Principal Factor: Education, 3.4.6 Another Secondary Factor: Importance of
Labor-Face Growth, and Labor Sector Policies
Productivity Importance of Sector Policies
The Role of Education Types of Sector Policies
Literacy Rate Agricultural Policies
Industrial Sector Policies
The Asian Growth
Miracle
The pace of economic growth and structural
change Asian countries in the past thirty to forty
years ranks most outstanding features of recent
world economic history
Japan led the way, beginning right after World
WarJapan led the way, beginning right after
World War II.
It was joined by Thailand, Taiwan, Singapore and
Korea in the 1960s.
Southeast Asia followed in the 1970s.
Primary Factors
➢ First Primary Factor: Importance of Outward-Looking Policies and the
Emphasis on Exports and Foreign Direct Investment
The first factor in the primary strategy was outward looking policies and
emphasis on Exports and acquisition of foreign technology.
by buying it from foreign companies iunder license and;
by copying it without license.
➢ Second Principal Factor: Macroeconomic Policies and the Role of the
Government
The second set of primary strategy focused on the importance of
macroeconomic policies and the Role of the Government
➢ Third Principal Factor: Education, Labor-Force Growth, and
Labor Productivity
Labor Productivity in Asia increased rapidly as did total productivity.
Education played a critical role in both the transition to an export ;ed growth strategy
and to the ability to sustain.
➢ Fourth Principal Factor: Labor-Market Flexibility
Secondary Factors
➢ Initial secondary Factor: Difference in Initial Conditions
Initial conditions played a part in the success of the miracle
conditions.
➢ Another Secondary Factor: Importance of Sector Policies
Sector policies were influential to the growth of the miracle economies.
Agricultural Sector Policies
Industrial Policies
3.5 Aspect of Economic Performance
In The “ Miracle” Economies
3.5. 1 High Growth Rates of Saving and
Investment
3.5. 2 Increased Productivity
3.6 The Policy Matrix and Economic
Performance in South Asia
ASPECTS OF ECONOMIC PERFORMANCE IN THE “MIRACLE” ECONOMIES
3.5.1 High Growth Rates of Saving and Investment
Rates of saving and investment increased dramatically in
many countries in Asia, from paltry levels of 10 percent or
less in Korea and Singapore, and somewhat higher levels
elsewhere in 1960, to over 30 percent by the 1990s. This
achievement is unprecedented in the annals of economic
history.
ASPECTS OF ECONOMIC PERFORMANCE IN THE “MIRACLE” ECONOMIES
3.5. 2 Increased Productivity
Beyond the increases in saving and investment, it is likely that improvements in the
efficiency with which these resources were used also contributed significantly to the
growth in the Asian nations. For comparison purposes, we will first examine estimates of
total factor production (TFP) for the industrialized nations.
We begin with a caveat that the estimates are sensitive to the accuracy of the variable
inputs measured. If the contributions of labor and capital to the growth process are
underestimated, then the value of TFP will be overestimated
THE POLICY MATRIX AND ECONOMIC PERFORMANCE IN SOUTH ASIA
South Asia: Slower Growth
Closed Economies:
South Asian economies were generally not open to international trade or foreign investment. This
limited their access to new technologies and markets.
- Inflexible Labor Markets:
South Asia had rigid labor markets, which made it difficult for businesses to hire and fire workers
as needed. This hindered economic flexibility.
- Lower Education Levels:
The workforce in South Asia had lower education levels than in the "miracle" economies, limiting
their skills and productivity.
3.7 Convergence of
Income
3.7 Convergence of Income
3.7.1 Absolutely Convergence
Definition
3.7.2 Conditional Convergence
Convergence of Income
Whether the countries from the lower end of the
development spectrum will ever catch up with the
development levels of the more advanced and more
industrialized economies at the high and the spectrum
is often a question of interest to both theoretical and
applied economists.
Absolutely Convergence
The hypothesis that poor countries tend to grow faster
per capital than rich countries-- without conditioning on
any other characteristic of the economies-- is referred
to as absolute convergence.
Log{Y(1990) - Y(1960) = a + b Log Y(1960)
Conditional Convergence
A more general approach than absolute convergence
is called Conditional Convergence. In conditional,
various parameters are allowed to change between
different countries or groups of countries.
The Harrod-Domar (1939-1946) model seems to
be a better predictor of the actual evolution of income
growth. Yet we know that Harrod - Domar model is
much too simple.
Thank You
for Listening!!!
