Which accumulation matters most for growth?

It is often argued that East Asia's rapid economic growth is down to two features primarily, the rapid accumulation of capital and labour in the market economy. But there are others who argue that productivity growth has been important for them. There are still others who argue for the importance of transfer of technological knowledge, not just in East Asia's growth but global growth.

Sorting the last issue out has been hampered by limited empirical studies on the role of technological transfer in growth. My recent work jumps into the lacuna, and there are some useful results emerging.

In a system GMM regression for a fifty year panel of all countries around the world and with five year country growth as a dependent variable, investment has seven percent average effect, education has an insignificant coefficient at a 0.2 p-value, so does population growth, so does the lagged income term, and the gap in telephones per person compared with the United States has a 12 percent effect. Average effects are calculated as estimation coefficients times the variable mean over the whole dataset. It is a bit rough, and the results will change with different estimation methodologies. But it is noticeable that the effect of a technology gap contributes more to growth than capital accumulation. The presence of a lagged income term removes some of the possibilities that the technology gap is picking up the effect of missing variables.

In fact, the presence of a lagged income term is not theoretically necessary. If it is omitted, the results are telephone gap has a 10% effect, investment 8%, education 7%, and population growth is insignificant.

If change in telephones per person is used instead, with no lagged term, the results are telephones per person change 7% effect , investment 5%, education is insignificant, population growth is insignificant. If change in computers per person is used, the results are computers per person change 1% effect, investment 10%, education -4%, population growth -4%.

If the data is restricted to Africa, and change in telephones per person is used, the fit is pretty good, with telephone per person change having 6% effect, investment 8%, education 15%, population growth 18%. I'm a bit sceptical about the value of the population growth results in developing countries as mentioned in my post last week. If lagged income is included, the results are telephone change 8% effect, investment 5%, education is insignificant, population growth 16%, lagged income 87%. I included a constant in the estimations, which help to explain the large effect of the lagged income, as the constant is large and negative.

If the data is restricted to South East and East Asia only without a lagged term, change in telephones per capita is insignificant as is population growth, investment has 6% effect and education has -23% effect. It is plausible that education's effect is negative because of the inclusion of communist states in the data, who educated highly but did not have market systems for much of the time. With the lagged income term, only investment is significant at 10 percent.

Well, there are lots of caveats to be made here, but it seems that capital accumulation has been the leading explanation for growth in South East and East Asia, but globally technology transfers are as important as the other forms of accumulation.