Accounting for Growth in Hong Kong, Taiwan, and China
Hong Kong, Taiwan, and China have each experienced substantial growth in standards of living over the last 55 years: per capita GDP in China increased by 1,040% (ie, it’s now more than 10 times bigger), in Hong Kong by more than 978%, and in Taiwan by a whopping 1,900%. But there are many other interesting features of the growth in these three countries over this period. The relative standard of living in Taiwan has almost converged to that of Hong Kong: per capita GDP in Hong Kong in 1960 was more than 2 times bigger than in Taiwan, but by 2014, it was only 13% bigger. Conversely, the relative standard of living in Taiwan has diverged from that of China: per capita GDP in Taiwan was about 88% bigger than in China in 1960, and by 2014 that gap had widened to more than 3.3 times as big. On the other hand, the average annual rate of growth in China has accelerated to 7.0% (continuously compounded) since 1990, compared to 4.3% in Taiwan and just 2.9% in Hong Kong.
Your goal is to use the “growth accounting” methods that we have developed to explore the similarities and differences in the growth experiences of these three regions.
Here are some facts:
| Region | Year | GDP per capita
(Y/Pop) |
Participation (L/Pop) | Capital per
Worker (K/L) |
Total Factor
Productivity (A) |
| Hong Kong | 1960 | 4,325 | 36% | 59,473 | 308 |
| 1990 | 23,522 | 46% | 221,310 | 845 | |
| 2014 | 46,641 | 52% | 424,494 | 1,193 | |
| Taiwan | 1960 | 2,068 | 30% | 13,094 | 292 |
| 1990 | 14,772 | 41% | 104,051 | 766 | |
| 2014 | 41,378 | 48% | 298,455 | 1,290 | |
| China | 1960 | 1,099 | 41% | 3,377 | 179 |
| 1990 | 2,311 | 55% | 9,185 | 201 | |
| 2014 | 12,524 | 58% | 84,660 | 492 |
Notes:
- Data are from the Penn World Tables 9.0.
- Y/Pop is per capita GDP measured in 2011 US dollars PPP-adjusted.
- Participation is the fraction of the population in the labor force.
- K/L is capital per worker measured in 2011 US dollars PPP-adjusted.
- Total Factor Productivity, A, is measured using the Cobb-Douglas production function, Y=AK1/3L2/3
Part 1: Use our growth accounting methodology to allocate annual average growth in per capita output to changes in average labor-force participation, capital per worker, and total factor productivity (TFP), for each of the three regions for the full sample, 1960-2014. Briefly discuss which factor has been most important for each country.
Part 2: Repeat Step 1 for two sub samples: 1960-1990, and 1990-2014. How does the more recent period differ from the earlier period for each region?
Part 3: Use whatever resources you think appropriate to uncover differences in
- legal and political institutions,
- human capital, education, and other labor market factors
- government policies (both microeconomic such as regulation, and macroeconomic such as taxation, international trade, and inflation), and
- business practices (eg, corporate governance, management styles, corruption, etc),across the three regions.
Comment on how similarities and differences along these dimensions relate to the relative economic performance we have observed. Looking forward, which region do you believe is best positioned for better economic performance over the next decade?