We employ the total factor productivity (TFP) index in growth accounting as a proxy for productivity growth to compare patterns and sources of output growth for a group of proximate countries in Asia-Pacific Economic Cooperation region. The estimates indicate that output growth has benefited from both TFP and factor input contributions albeit with differing magnitudes. Whereas TFP and capital are the dominant contributors to output growth in Japan and the tiger economies, capital and labour emerge as the dominant contributors in the baby tiger economies. In addition, Japanese productivity has on the average been growing over the past decade. It also emerges that foreign direct investment may be playing a prominent role of promoting the contribution of TFP.

Anthony Bende-Nabende

Jim Ford

Jim Slater

Somnath Sen

English

Research Papers in Economics

Productivity analysis in Asia−Pacific Economic Cooperation
region: A multi−country translog comparative analysis,
1965−97 
Anthony Bende−Nabende Jim Ford
The Business School, The University of Birmingham,
UK
Economics Department, The University of Birmingham
Somnath Sen Jim Slater
Economics Department, The University of Birmingham The Business School, The University of Birmingham
Abstract
We employ the total factor productivity (TFP) index in growth accounting as a proxy for
productivity growth to compare patterns and sources of output growth for a group of
proximate countries in Asia−Pacific Economic Cooperation region. The estimates indicate
that output growth has benefited from both TFP and factor input contributions albeit with
differing magnitudes. Whereas TFP and capital are the dominant contributors to output
growth in Japan and the tiger economies, capital and labour emerge as the dominant
contributors in the baby tiger economies. In addition, Japanese productivity has on the
average been growing over the past decade. It also emerges that foreign direct investment
may be playing a prominent role of promoting the contribution of TFP.
The research for this paper was supported by grant L 324 25 3010, Pacific Asia Research Programme of the ESRC for which we
express our thanks.
Citation: Bende−Nabende, Anthony, Jim Ford, Somnath Sen, and Jim Slater, (2002) "Productivity analysis in Asia−Pacific
Economic Cooperation region: A multi−country translog comparative analysis, 1965−97." Economics Bulletin, Vol. 15, No. 2
pp. 1−9
Submitted: October 22, 2001.  Accepted: January 11, 2002.
URL: http://www.economicsbulletin.com/2002/volume15/EB−01O10002A.pdf  1
1 Introduction and literature review 
 
The term total factor productivity (TFP) refers to how output would change if all the factor 
inputs were maintained constant. TFP is thus, a catch-all for those things that increase the 
joint efficiency of labour and capital. This concept was introduced by Tibergen (1942) 
(Christensen, Cummings and Jorgenson (1980)). Several economists (Denison (1962), 
Christensen, Cummings and Jorgenson (1980), Krugman (1994), Kim and Lau (1992), and 
Osaka (1996)) have since made international comparison of post-war patterns of aggregate 
economic growth. Their common underlying theme is that growth should be driven by 
efficiency gains rather by the rapid growth of factor inputs which, are subject to diminishing 
returns. Kim and Lau’s (1992) results revealed that even with the inclusion of human capital 
in the aggregate production function, technical progress remains the most important source of 
growth for the G-5. Krugman (1994) made similar observations for the G-5 (except Japan). 
However, regarding the Asian newly industrialising countries’ (NICs) growth, he concluded 
that nothing is left over after the factor contributions of capital and labour to growth are 
deducted from GDP growth so that there is no productivity growth in the NICs.  
This paper compares pre-Asian Financial crisis sources and patterns of aggregate 
economic growth for a group of five Asia-Pacific Economic Cooperation (APEC) countries 
(Hong Kong, Japan, the Philippines, Taiwan and Thailand) - in the same region but at 
different levels of economic development. To achieve this, we employ the TFP index in 
growth accounting as our proxy for productivity growth. Furthermore, we disaggregate the 
estimates into sub-periods concomitant with certain renown global economic shocks, i.e. the 
period up to the first oil shock, the second oil shock, the Plaza Accord and the Japanese stock 
market slump (1965-74, 1975-79, 1980-85, 1986-89, and 1990-97).  
The rest of the paper is therefore organised as follows. Section 2 discusses the model. 
The empirical analysis is presented in section 3 while concluding remarks are the focus of 
section 4. 
 
2 The model 
 
The analysis utilises a model that transforms an aggregate production function into a 
production function in which output is an exponential function of the logarithms, i.e. the 
translog production function, which is presented as:
 1 
  
]
2
1
* ) (
2
1
*
) (
2
1
exp[
2 2
2
0
T T InL InL InK T
InKInL InK T InK InL Y
TT LT LL KT
KL KK T K L
b b b b
b b a a a a
+ + + +
+ + + + + =
   (1) 
  
where Y = output, K = capital, L = labour and T = time. Expression (1) can be viewed as a 
second order approximation of a production function and provides a theoretical justification 
for the use of average factor shares and log differences as a means of the extension of the 
Divisia analysis
2 of productivity growth for data between two discrete time periods. The 
expression for the average rate of technical change v’T  (TFP) over two discrete periods T and 
T-1 can then be defined as: 
 
                                                            
1 For a detailed derivation, conditions and assumptions regarding this function see Appendix 1. 
2 The Divisia indices technique (quantity and analogous price indices) was initiated by Divisia (1925) and later 
used by Christensen et al (1980) in estimating TFP.   2
)] 1 ( ) ( [ '
)] 1 ( ) ( [ ' )] 1 ( ) ( [
- - -
- - - - - =
T InL T InL v
T InK T InK v T InY T InY TFP
L
K      (2) 
 
where v’K and v’L denote the mean aggregate factor in total factor payments between two 
discrete time periods.  
 
3 Empirical results 
 
The results summarised in Table I,
3 demonstrate that the aggregate picture for all the 
countries (except Hong Kong) over the entire period (1965-97) is in agreement with 
Krugman’s (1994) observation, i.e. output growth was derived mainly from the contribution 
of capital stock. However, on disaggregating the results, it becomes evident that the 
contribution of TFP to Japanese output growth has increased consistently since after the first 
oil crisis, and certainly TFP has generally dominated contribution to output growth since 
1986 (see Figure 1). Similarly, between 1985-97, TFP’s contribution to Taiwanese output 
growth has been no less than 20% in any year and has averaged 43%. Furthermore, although 
TFP’s contribution to Hong Kong’s output growth has been declining, it remains the 
dominant contributor. For the baby tigers (the Philippines and Thailand), however, capital 
remains the major contributor. It thus, emerges that capital and TFP are dominant in Japan 
and the NICs, while capital and labour are the dominant factors in the Asian baby tiger 
economies. This is concomitant with the factor endowments. According to our estimates 
then, Krugman’s (1994) assertion now relates to the Asian baby tiger economies. However, 
when it comes to the Asian NICs, the conclusion now changes to ‘nothing is left over after 
the contributions of capital and TFP to growth are deducted from GDP growth so that there 
is no contribution by labour’.  
Another interesting observation is that concerning the role of FDI. The period 
following the Plaza Accord, i.e. 1986-89 relates to a surge in FDI flows into the less capital-
intensive countries, and a consolidation of high tech- and capital-intensive production 
strategy in the more capital-intensive countries. The results demonstrate that the contribution 
of TFP exceeded that of capital and labour for all the countries indicating a simultaneous 
surge in productivity. The implication for the developing countries is that FDI transfers new 
technology (in the form of capital machinery, product innovation, process innovation and 
technical and managerial knowledge) which promotes the efficiency of production.
4 Thus, 
FDI is a potential channel through which developing economies can increase their 
productivity. 
 
4 Conclusion 
 
Our disggregated TFP estimates for the Asian NICs fail to concur with Krugman’s (1994) 
conclusion. Instead, it is the Asian baby tigers, which can now be related to his observation. 
FDI’s role cannot be ignored since it presents a potential channel through which productivity 
can be enhanced. In relation to productivity and FDI is the quality of human capital. The 
NICs have invested extensively in the development of human capital, which may have been 
complementary to FDI and productivity growth. By contrast, the baby tiger’s enrolment 
ratios drop significantly at the post-primary levels limiting their capability to accept, adopt 
and diffuse new technologies and knowledge and hence, to stimulate productivity. Hence, the 
                                                            
3 An annual breakdown of the growth rates plus the estimates for capital stock, labour and TFP contributions are 
available upon request. See Appendix 2 for measurement of variables. 
4 On the importance of this in this context see for instance Chudnovsky (1993).   3
need to invest extensively in human capital. Turning to the Asian NICs, if they are to 
continue sustaining productivity (that in Hong Kong is declining), they have to devote more 
resources to investment in R&D.   4
Appendices 
 
Appendix 1 The derivation of the formula 
 
We design a model which separates growth in real factor input from growth in total factor 
productivity in accounting for growth in real product, i.e. one that identifies individual 
contributions. To achieve this, we consider a specific aggregate production function of the 
form:
5 
 
) , , ( T L K F Y =             (1) 
 
where Y = output, K = capital, L = labour and T = time. 
Here time is included in the production function for purposes of measuring changes in the 
pattern of production, i.e. rate of technical change or put in other words, the rate of output 
growth, holding all inputs constant. 
If the production function F gives output Y as a function of aggregate inputs, say X, 
the function is of the form, 
 
] ), , ( [ T L K X G Y =            (2) 
 
 
where G is homogeneous of degree one in aggregate input X, and aggregate input is 
homogeneous of degree one in capital input K and labour input L, so that technical change is 
Hicks-neutral: 
 
) , ( ) ( L K X T A Y =            (3) 
 
This can be transformed into a production function in which output is transcendental or, more 
specifically, an exponential function of the logarithms of inputs. This is referred to as 
transcendental logarithmic production function or simply, the translog production function. 
It enables the inclusion of data at discrete time periods. 
 
]
2
1
* ) (
2
1
*
) (
2
1
exp[
2 2
2
0
T T InL InL InK T
InKInL InK T InK InL Y
TT LT LL KT
KL KK T K L
b b b b
b b a a a a
+ + + +
+ + + + + =
    (4) 
 
Expression (4) can be viewed as a second order approximation of a production function and 
provides a theoretical justification for the use of average factor shares and log differences as 
a means of the extension of the Divisia analysis of productivity growth for data between two 
discrete time periods. The conditions for satisfying the assumption of constant returns to 
scale are: 
  1 = + L K a a  
  0 = + KL KK b b  
  0 = + LL KL b b  
 
Moreover, the value shares of capital, labour and technical change can be expressed as: 
                                                            
5 This section draws extensively from Christensen et al (1980).   5
InT InL InK v
InT InL InK v
InT InL InK v
TT LT KT T T
LT LL L K L L
KT KL KK K K
b b b a
b b b a
b b b a
+ + + =
+ + + =
+ + + =
        (5) 
 
The average rate of change of output between two discrete time points T and T-1 can now be 
expressed as: 
 
 
T L
K
v T InL T InL v
T InK T InK v T InY T InY
' )] 1 ( ) ( [ '
)] 1 ( ) ( [ ' ) 1 ( ) (
+ - - +
- - = - -
      (6) 
where 
)] 1 ( ) ( [
2
1
'
)] 1 ( ) ( [
2
1
'
)] 1 ( ) ( [
2
1
'
- + =
- + =
- + =
T v T v v
T v T v v
T v T v v
T T T
L L L
K K K
 
 
The expression for the average rate of technical change v’T is referred to as the translog index 
of technical change. Defining v’T as Total Factor Productivity (TFP) – (ratio between real 
product and real factor input) over two discrete periods T and T-1 gives: 
  
)] 1 ( ) ( [ '
)] 1 ( ) ( [ ' )] 1 ( ) ( [
- - -
- - - - - =
T InL T InL v
T InK T InK v T InY T InY TFP
L
K      (7) 
  
where v’K and v’L denote the mean aggregate factor in total factor payments between two 
discrete time periods.  
 
Appendix 2 Measurement of variables and data sources 
 
Output = log GDP (international prices), computed from Penn World Tables. 
Capital stock  = log capital stock (international prices), computed from Penn World Tables. 
Employment = log number employed, computed from Penn World Tables. 
Labour hours  = log labour hours. A product of number employed and average hours worked. 
Hours worked = Average annual hours worked, from Labour Statistical Yearbook. 
FDI = (100 billion U.S $), from Balance of Payments Statistical Yearbook. 
Factor shares - For simplicity, our labour income share in output comprises compensation of 
employees drawn from the National Accounts Statistics Yearbook. 
 
References 
 
Christensen, L.R., D. Cummings, and D.W. Jorgenson, 1980, “Economic growth, 1947-73: 
an international comparision”’ in New Development in Productivity Measurement and 
Analysis by J.W. Kendrick and B.N. Vaccara, Eds., University of Chicago press: Chicago.  
Chudnovsky, D., 1993 “Introduction: Transnational Corporations and Industrialisation” in 
The United Nations Library on Transnational Corporations, Transnational Corporations 
and Industrialisation by D. Chudnovsky, Ed., Routledge: London, 11, 1-28. 
Denison, E.F., 1962 “The Sources of Economic Growth in the United States and the 
Alternatives before Us” Committee for Economic Development: Washington, DC.   6
Divisia, F., 1925 “L’indice monetaire et la theorie de la monnaie” Revue d’economie 
Politique 39, 842-61, 980-1008, and 1121-51. 
Kim Jong-II and L.J. Lau, 1992 “Human Capital and Aggregate Productivity: Some 
Empirical Evidence from the Group-of-Five Countries” Department of Economics, 
Stanford University working Paper. 
Krugman, P., 1994 “The myth of Asia’s miracle” Foreign Affairs 73, 62-78. 
Maddison, A., 1987 “Growth and slowdown in advanced capitalist economies: techniques of 
quantitative assessment” Journal of Economic Literature 25, 649-698. 
Osaka, H., 1996 “Industrialisation, Productivity and Long-run Economic Growth: Empirics 
for some Asian Countries” Unpublished PhD Thesis. 
The World Penn Tables Mark 5.6. Retrieved from data base on web site 
http://datacentre.chass.utoronto.ca:5680/cgi-bin/pwt/ 
United Nations, “The United Nations Balance of Payments Statistical Yearbook” United 
Nations: New York, (various years). 
United Nations, “The United Nations National Accounts Statistical Yearbook” United 
Nations: New York, (various years). 
United Nations, “The United Nations Yearbook of Labour Statistics” United Nations: New 
York, (various years).   7
Table I Aggregate estimates and percentage shares for TFP, and for capital and 
labour contributions 
 
Period  Hong Kong  Japan  Philippines  Taiwan  Thailand 
           
TFP           
1965-74  .035   (43.3)  .011   (15.5)  .009   (15.5)  -.001   (-1.3)  -.032   (-55.6) 
1975-79  .042   (43.0)  -.004   (-8.6)  .021   (37.8)  .008   (8.2)  .001   (1.9) 
1980-85  .048   (75.5)  .015   (39.4)  -.042   (686)  .002   (5.2)  -.015   (-35.8) 
1986-89  .063   (74.5)  .019   (45.3)  .040   (75.6)  .055   (56.7)  .051   (59.1) 
1990-97  .013   (26.3)  .013   (61.0)  .015   (39.9)  .026   (41.8)  -.025   (-36.6) 
1965-97  .037   (49.9)  .011   (24.2)  .006   (16.3)  .014   (18.2)  -.012   (-20.9) 
Capital            
1965-74  .031   (38.6)  .062   (81.0)  .037   (66.5)  .081   (87.7)  .095   (146) 
1975-79  .035   (35.4)  .023   (53.4)  .025   (45.1)  .071   (80.0)  .071   (89.4) 
1980-85  .014   (22.0)  .018   (45.8)  .030   (-481)  .049   (84.2)  .051   (118) 
1986-89  .019   (22.5)  .017   (38.9)  .001   (2.8)  .036   (36.4)  .038   (43.3) 
1990-97  .032   (63.9)  .011   (51.3)  .012   (31.2)  .034   (54.3)  .088   (130) 
1965-97  .027   (37.2)  .030   (64.1)  .023   (59.1)  .057   (71.8)  .075   (113) 
Labour            
1965-74  .014   (18.2)  .003   (3.5)  .010   (18.0)  .013   (13.6)  .007   (10.5) 
1975-79  .021   (21.7)  .023   (54.8)  .009   (17.2)  .010   (11.8)  .007   (8.7) 
1980-85  .002   (2.5)  .006   (14.7)  .007   (-106)  .006   (10.6)  .008   (17.6) 
1986-89  .003   (3.1)  .007   (15.8)  .011   (21.6)  .007   (6.9)  -.002   (-2.4) 
1990-97  .005   (9.8)  -.003   (-12.4)  .011   (29.6)  .002   (3.8)  .005   (7.0) 
1965-97  .009   (12.9)  .006   (11.7)  .010   (24.6)  .008   (10.0)  .006   (8.2) 
Notes: Figures may not tally due to rounding off. Percentage shares in parentheses.  
   8
 
Figure 1 Average aggregate percentage contribution of TFP to output growth. 
Notes: HK – Hong Kong, J – Japan, P – Philippines, T – Taiwan and TH – Thailand. The figure for the Philippines 
for 1980-85 has been set to zero since average aggregate output growth was negative. 
 
 
-80
-60
-40
-20
0
20
40
60
80
100
1965-74 1975-79 1980-85 1986-89 1990-97
Period
%
 
C
o
n
t
r
i
b
u
t
i
o
n
HK
J
P
T
TH

Economic growth, 1947-73: an international comparision”’

Growth and slowdown in advanced capitalist economies: techniques of quantitative assessment”

Human Capital and Aggregate Productivity: Some Empirical Evidence from the Group-of-Five Countries”

Introduction: Transnational Corporations and Industrialisation”

The Sources of Economic Growth in the United States and the Alternatives before Us” Committee for Economic Development:

Productivity analysis in Asia-Pacific Economic Cooperation region: A multi-country translog comparative analysis, 1965-97

http://www.accessecon.com/pubs/EB/2002/Volume15/EB-01O10002A.pdf

Productivity analysis in Asia-Pacific Economic Cooperation region: A multi-country translog comparative analysis, 1965-97

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