Productivity growth and technological change in the East Asian NIEs : the case of Korea

Abstract

Growth accounting exercises suggest that the reason for the remarkable growth in East Asian newly industrialising economies over the past four decades was capital accumulation. Capital accumulation, rather than productivity growth, was identified as the main source of economic growth. This thesis explores the character of East Asian growth, and how it has been driven by structural change over the past four decades. Structural change increased capital intensity in industrial production in new industries and highquality production with the accumulation of capital. The argument is that this process mechanically leads to low productivity gains, because the joint contribution of capital and technology to output growth is solely attributed to capital, so underestimating the role of technological change. It is therefore misleading to interpret low measured productivity growth in growth accounting studies as a sign of the unsustainability of growth on the assumption that measured productivity growth is identical to technological change. Verification of the sequencing of the sources of output growth (productivity growth in light industries leads to capital accumulation in heavy and petrochemical industries and in turn to productivity growth through R&D investment) and interaction between capital and productivity growth provides a new interpretation of the growth accounting results. East Asian NIEs have not yet arrived at the final stage of development, where innovation by R&D investment is the primary means of technological change. Rapid growth in these economies has been driven by structural adjustment, which links capital accumulation and technological change. The thesis has two implications for technological change in follower countries. First, there are shifts in the major channels of technology transfer over different phases of development (from informal methods to capital import to technology imports to R&D investment). Second, rival and bounded components of technology have played a crucial role in East Asian growth.