On the Two Catching-Up Mechanisms in Asian Development

Abstract

Existing studies identify two major underlying mechanisms behind East and Southeast Asia’s miraculous economic performance in the past 5 decades: accumulation and technological catching-up. This study investigates empirically the relative importance of these two mechanisms in Asian development based on a unified framework. Using canonical cross-economy panel data, the study arrives at three important findings. First, while the process of catching-up through capital accumulation played an important role worldwide, this mechanism was more salient in Asia than in other economies around the globe, especially during the region’s early phase of growth and development. Second, human capital formation had a significant positive effect on the technological catching-up process worldwide. In particular, human capital formation promoted technology adoption more strongly in Asia than in the rest of the world. Third, innovation has also been critical in facilitating recent growth in Asian economies. These results suggest that Asia’s capital-accumulation-driven growth in the early phase induced human capital formation and international technological transfers at later phases, with strong complementarities between these two types of capital. Asian economies likely went through three phases of catching-up, that is, capital accumulation, technological imitation, and then innovation. The experiences of these Asian economies in the last several decades provide critical lessons for latecomer growth and development.