Has the capital accumulation in the Asian miracle economies been fuelled by growth?

ABSTRACT

The Asian growth miracle is often attributed to factor accumulation under the implicit assumption that savings, broadly defined, have been high and increasing due to exogenous forces. Using data for India, Indonesia, Korea, Singapore and Taiwan over the period 1870–2011 this article examines the causal relationship between growth and saving. The response of growth to savings is first estimated using instruments to generate exogenous variation in savings rates. The residual variation in growth that is not driven by savings is then used as an instrument to estimate the effect of growth on savings. The estimates show that the spectacular saving rates in the Asian miracle economies have been fuelled by growth, and not the other way around.

KEYWORDS:

• Saving
• growth
• Asian miracle economies
• factor accumulation
• schooling

JEL CLASSIFICATION:

• O3
• O4

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary

Supplemental data for this article can be accessed here.

Notes

¹ Several papers have been critical to the capital accumulation hypothesis and argue that too much of the growth has been attributed to capital accumulation in growth accounting exercises, particularly the AMEs (see, for example, Aghion and Howitt 2007; Ang and Madsen 2011; Easterly and Levine 2001; Hsieh and Klenow 2010; King and Rebelo 1993; Klenow 2001; Klenow and Rodriguez-Clare, 1997; Robertson 2002).

² The potential effects of unbalanced sex ratios are likely to be more prominent in males than females. Male-biased sex ratios are likely to increase intrasexual competition of males because they are at an increased risk of failing to attract a mate when there is a scarcity of females (Kvarnemo and Forsgren 2000).

³ Detailed data sources are provided in the online Data Appendix.