The Different Structure of Sources of Growth between the Developed and the Developing Asia and the Pacific Countries

Abstract

This study analyzed the economic growth of Asia and the Pacific countries using the neoclassical augmented growth model. This study hypothesized that the structure of the growth model for the developed and the developing countries was different. A number of augmented input factors were incorporated into the standard growth model; the net inflow of foreign direct investment per capita, the competitiveness of the economy, age dependency ratio, governance index, industrial employment, employment in services, and the urban population ratio. All coefficients in the model were significant and the correct signs. The urbanization effect was found to be an inverted U-shaped curve, implying there is an optimum size of the urban population. Governance was insignificant for the developed countries but was significantly positive for the developing counties. The foreign direct investment and competitiveness were two factors that obeyed the principle of diminishing marginal returns to growth, with a larger effect on growth in the developing countries than in the developed countries. The other five factors contributed a larger effect in the developed countries than in developing countries and included physical capital, human capital, industrial employment, services employment, and the dependency ratio. This finding of the five factors implies that the markets of those factors in developing countries are inefficient under imperfect competition and several policy distortions. These two contradictory findings suggested that the income of some developing countries was not necessary for catching up with the income of the developed countries.