Economics 980aa THE RISE OF ASIA AND THE

Economics 980aa THE RISE OF ASIA AND THE

Economics 980aa THE RISE OF ASIA AND THE WORLD ECONOMY with Professor Dale W. Jorgenson Lecture 1

IS ASIAS MIRACLE A MYTH? January 24, 2018 Harvard University Department of Economics Spring 2018 THE RISE OF ASIA AND

THE WORLD ECONOMY 1. Is Asias Miracle a Myth? 2. China: Worlds Largest Economy 3. India: The Most Rapidly Growing Economy 4. Reviving Japanese Economic Growth

KRUGMAN: 1994, 2005, and 2013 Paul Krugman, The Myth of Asian Miracles, Foreign Affairs, November-December 1994: From the perspective of the year 2010, current projections of Asian supremacy extrapolated from recent trends may well look as silly as 1960s-vintage forecasts of

Soviet industrial supremacy did in from the perspective of the Brezhnev years. Paul Krugman Blog, New York Times, October 31, 2005: [I]n the mid-1990s I made some modestly pessimistic predictions about Asia back when everyone else was wildly optimistic. When a terrible financial crisis struck, people said I had been proved right. My

response was that I had been 90 percent wrong, its just that everyone else had been 150 percent wrong. ORIENTAL PEARL TOWER, SHANGHAI 1990 VS. 2010

KRUGMAN 1994: A SUMMARY According to the results of growth accounting, Asian economic miracles cannot persist, since they involve replication without innovation like the former Soviet Union. Advanced nations like the U.S. have achieved sustained growth in per capita income over the past 150 years by a continual increase in national income for each

unit of input. Singapore is Krugmans leading example: Economic growth involves a huge investment effort and rapid growth of the labor force, mainly by immigration. But this is far from typical of Asia. Suppose, he says, that China is like Singapore: If Chinas growth is seven percent per year rather than ten percent, it will make a huge difference.

PAUL KRUGMAN 2013: HES BAAACK! Paul Krugman, Hitting Chinas Wall, New York Times, July 18, 2013: China is in big trouble. Were not talking about some minor setback along the way, but something more fundamental. The

countrys whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.

THE TYRANNY OF NUMBERS: THE ASIAN MODEL OF GROWTH Output, Factor Accumulation, and Productivity Growth in the Four Tigers Each of the Four Tigers Increased Labor Force Participation and Educational Attainment

Each Had a High and Rising Ratio of Investment to GDP Productivity Growth Averaged Two Percent per Year for Hong Kong, South Korea, and Taiwan and 0.2 Percent for Singapore, Accounting for a Quarter of Economic Growth from 1966-1990. Productivity Growth Is Comparable to That of OECD and Latin American Economies During the Same Period

PRODUCTIVITY AND ECONOMIC GROWTH MEASURING PRODUCTIVITY THE FOUR TIGERS

GROWTH RATES INVESTMENT/GDP RATIO TFP GROWTH: SINGAPORE, HONG KONG

TFP GROWTH: SOUTH KOREA TFP GROWTH: TAIWAN TFP GROWTH: AVERAGE AND COMPARATIVE

RECONCILING ESTIMATES OF PRODUCTIVITY GROWTH PRODUCTIVITY MEASURING CAPITAL

TYRANNY OF NUMBERS: SUMMARY AND CONCLUSION The results of this paper should be heartening to economists and policy-makers alike. If the remarkable post-war rise of East Asian living standards is the result of one-shot increases in output

brought about by the rise in participation rates, investment to GDP ratios, and educational standards and intersectoral transfers from agriculture to other sectors then economic theory is admirably well equipped to explain the East Asian experience. Neo-classical growth theory, with its emphasis on level changes in income and its well-articulated quantitative framework, can

explain most of the difference between the performance of the [Asian Tigers] and other post-war economies. Alwyn Young, p. THE FOUR TIGERS: HAS ANYTHING CHANGED? Growth of Output: World Bank International Comparison Program

Growth of Inputs: Jorgenson and Vu, The Rise of Asia Growth of Total Factor Productivity Is the Difference between Growth of Output and Inputs Growth Rates of the Four Tigers Have Fallen, but Rates of Productivity Growth Are About the Same

THE RISE OF ASIA AND THE NEW ECONOMIC ORDER THE SOURCES OF ECONOMIC GROWTH: Capital Input, Labor Input, and Productivity CAPITAL INPUT GROWTH: Information Technology and Non-Information Technology

LABOR INPUT GROWTH: Hours Worked and Labor Quality. PRODUCTIVITY: Output per Unit of Input CAPITAL INPUT GROWTH INPUT SHARES OF IT: Computers, Communications Equipment, and Software

CAPITAL CONTRIBUTION BY INFORMATON TECHNOLOGY: Computers, Communications Equipment, and Software CAPITAL CONTRIBUTION IT AND NON-IT: IT vs. Non-IT Capital Services WORLD INPUT CONTRIBUTION OF IT

G7 INPUT CONTRIBUTION OF IT ASIA 7 INPUT CONTRIBUTION OF IT DEVELOPING ASIA INPUT CONTRIBUTION OF IT

SOURCES OF ECONOMIC GROWTH LABOR INPUT GROWTH: Hours Worked and Labor Quality TOTAL FACTOR PRODUCTIVITY: Output versus Input

SOURCES OF ECONOMIC GROWTH: Capital Input, Labor Input, and TFP SOURCES OF WORLD ECONOMIC GROWTH SOURCES OF G7 ECONOMIC GROWTH

SOURCES OF ASIA 7 ECONOMIC GROWTH SOURCES OF MAJOR DEVELOPING ASIA ECONOMIC GROWTH

THE RISE OF ASIA: SUMMARY AND CONCLUSION Our first objective is to allocate the growth of world output between input growth and productivity. Surprisingly, input growth greatly predominates. Productivity growth accounted for 14.1 percent of world growth during 19901995, while input growth accounted for the rest, as shown in Table 2.

Productivity growth contributed 17.8 percent of growth in 19952000, but surged to 36.4 percent during the worldwide boom in 20002005, before plunging back to only 7.2 percent in 20052009. Jorgenson and Vu (2011) THE ASIAN MODEL OF ECONOMIC GROWTH

Just as predicted by the neo-classical model, growth rates have declined and are approaching a long-run equilibrium determined by growth of population and the Harrod-neutral productivity growth rate. Japan entered this phase around 1973; the Four Tigers entered at various times, beginning around 1980. China is about to enter this phase and Indias growth rate was still rising in 2010. We will have to

address the issue of whether India will be following the Asian model outlined by Alwyn Young or will fall short through deficient factor accumulation. For this purpose we need growth accounts that are comparable to other Asian countries. IMPORTANT DATES/DEADLINES

Wednesday, Jan. 24 @ 5 p.m.: Deadline to submit course applications to [email protected] Friday, Jan. 26 before 9 a.m. (or even sooner): Students will be notified if they have been selected to enroll in the course. Friday, Jan. 26 before 12 noon: Students should submit their Presentation Topic Preferences [email protected]

Friday, Jan. 26 by 5 p.m.: Students should sign up for office hours appointment for either Jan. 29 or Feb. 6.

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