| Abstract: |
As the studies of Krugman (1994), Young (1994), and Lau and Kim (1994) showed,
the East Asian economic miracle may be characterized as 'input-led' growth.
However, both the stagnation in investment and the decrease in average working
hours combined with a decrease in the fertility rate require a productivity
surge for renewed, sustainable growth in East Asia. The purpose of our study
is to identify the sources of economic growth based on a KLEMS model for Japan
and the Republic of Korea, which experienced a 'Lost Decade' and a financial
crisis in 1997-1998, respectively. We report estimates of multifactor
productivity in the market economy of Japan and Korea based on the dataset of
a 72-industry classification following EU KLEMS project guidelines. We also
identify the contributions of ICT assets and resource reallocations in two
economies. Both economies have strong ICT-producing sectors but relatively
weaker ICT-usage effects. Lower productivity in service industries due to
excessive regulations and lack of competition in public service sectors seem
to have worked against enhancing ICT-usage effects and finding renewed
sustainable growth paths. The resource reallocation effects of capital input
in both Japan and Korea were either negligible or insignificant, while those
of labor input (the labor shift from lower wage industries to higher wage
industries) were positive and significant. Therefore, a series of
productivity-enhancing policies designed to promote reallocation of capital
input seems crucial for both economies to resume sustainable growth paths. |