East Asian growth experience revisited from the perspective of a neoclassical model

The business cycle accounting “wedge” methodology is used to identify the mechanisms driving the rapid growth of Hong Kong, Singapore, South Korea, and Taiwan since 1966. Analysis with a neoclassical growth model reveals that growth in these economies has been sustained by different mechanisms at different stages of development. Factor accumulation, which arises primarily from increases in capital wedges, accounts for most of the rapid growth in the earlier stages. However, in the later stages, total factor productivity growth becomes the primary driver.

► The growth of Hong Kong, Singapore, South Korea, and Taiwan since 1966 is studied. ► Business cycle accounting is used to find the critical forces driving this growth. ► The prime driver differs at different stages of development. ► Factor accumulation from rising capital wedges is crucial in the earlier stages. ► Total factor productivity growth is important in the later stages.