Underpinnings of Taiwan's economic growth: 1978-1999 productivity study

The objective of this paper is to measure the growth of TFP in 36 sectors and the whole of the economy of Taiwan during 1978-1999 by using detailed sectoral data that are adjusted in order to account for input-output tables and the capital utilization rate. The major findings are as follows. First, for the Taiwan economy as a whole, the TFP growth rate is estimated to be 3.01% per annum during the whole of the 1978-1999 observation period, while it is estimated to be 2.95% after adjusting for the capital utilization rate. Second, the relative contribution of TFP adjusted during 1978-1999 for the capital utilization rate to output growth is found to be as high as 41.0%, which is close to the relative contribution of the capital input (46.2%) and much higher than the relative contribution of the labor input (12.8%). Consequently, the Krugman-Kim-Lau-Young hypothesis, i.e. the 'input-driven growth' hypothesis is found not to apply to Taiwan during 1978-1999. This finding reinforces the conclusions of Liang (1995) and Liang (2002).