Abstract
Despite the recognised importance of total factor productivity (TFP) in explaining the remarkable economic performance of the High-Performing Asian economies (HPAEs), the study of TFP and its determinants has received little attention in the empirical literature on economic growth. This thesis attempts to make a contribution in this area by examining different methods of analysing TFP to show the fragility of carefully drawn out results from different methods of analysis.
We use different types of data (cross-sectional, time-series and pooled time series and cross-sectional data) and appropriate econometric tools and consider the hypothesis that the degree of openness of an economy, the different roles of government, and human capital are the major factors that influence TFP. We also carefully examine the different ways of incorporating human capital into the analysis.
Different proxies for the role of government are used to capture the different effects of government on the economy. We also acknowledge the importance of using better proxies for the degree of openness of the economy.
We do find that despite careful and systematic analysis of TFP, empirical findings in this area tend to be sensitive to the type of data used and econometric techniques applied. We are therefore careful not to suggest that the results of this study identify what the determinants of TFP are without a doubt.
For instance, results from the cross-sectional analysis show that government intervention, measured in terms of government consumption expenditure, price controls and government ownership of enterprises, is a statistically significant influence on the TFP levels of countries. Contrary to the hypothesis, government intervention in terms of total government consumption expenditures is a positive influence on TFP. The other forms of government intervention, e.g., ownership and control of enterprises and price controls, are, as hypothesised, negative influences on TFP, but these results are quite fragile depending on the other variables included in the regression equation. There is some evidence that the degree of openness of the economy influences TFP levels. A less open economy, measured in terms of either the black market exchange rate premium or taxes on international trade as a percentage of the total trade sector, is a negative influence on TFP levels. The effect of human capital is not statistically significant.
The time-series analysis of the individual HPAEs, however, shows that only government intervention, measured in terms of non-complementary expenditure, is a statistically significant influence on TFP, and that only for Malaysia. Granger causality tests for the joint causal effects of the hypothesised determinants, on the other hand, show that these variables jointly Granger cause TFP levels in four of the five HPAEs examined (i.e., Malaysia, Singapore, South Korea and Thailand).
Then, estimation of the pooled time-series and cross-sectional data, allowing for fixed country effects, appears to provide support for a long-run level relationship between TFP and our hypothesised determinants.
In general, although all of the estimations conducted in this study are supplemented by a series of diagnostic tests, which are lacking in many of the previous empirical studies, the results still suffer persistently from the problem of not having sufficient time-series data, contributing to the fragility of results.