Evidence of localized technical progress in East Asia (Korea, Singapore, Taiwan, China)

A number of recent studies have argued that the rapid economic growth in East Asia for the past three decades is due mainly to greater accumulation of capital and labor. Using traditional aggregate growth accounting exercises, these researches have concluded that the contribution of technical progress to high rates of output growth was almost zero in the East Asian countries.; If technical progress in specific sectors results in capital accumulation in those sectors, then the results of these previous studies may be misleading. With regard to this, Van & Wan (1997) theoretically suggest that with the assumption of localized technical progress, capital accumulation may follow technical gains and thus the role of technical progress in growth can not be dismissed.; This paper finds empirical evidence of localized technical progress in East Asian countries, by comparing factor price ratios with the marginal rate of technology substitution (MRTS) implied by a fitted aggregate production function. This methodology is applied to industry data on South Korea, Singapore and Taiwan. The empirical results suggest that there is strong evidence of localized technical progress in South Korea, Singapore and Taiwan. Export data in these three countries and the total factor productivity calculations for Korean twenty-eight manufacturing industries provide further evidence consistent with the Van & Wan arguments.