Trajectories to High Income: Growth Dynamics in Japan, the People’s Republic of China, and the Republic of Korea

47 Pages Posted: 26 Jan 2021

See all articles by Michael Murach

Michael Murach

University of Hagen (FernUniversitaet in Hagen)

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen)

Jungsuk Kim

Sogang University

Donghyun Park

Asian Development Bank - Economic Research

Date Written: October 9, 2020

Abstract

We analyze and compare the patterns of economic growth and development in the Japan, the People’s Republic of China, and the Republic of Korea in the postwar period. The geographical proximity and cultural affinity between the three countries, as well as the key role of the development state in the economies, suggest that an analytical comparison would be a meaningful and valuable exercise. Furthermore, Japan and the Republic of Korea are two of the few economies that have jumped from middle income to high income in a short period and thus offer potentially valuable lessons for the PRC. We use Cobb–Douglas production functions to assess the long-run equilibrium relationships between per capita gross domestic product, capital, and labor by means of cointegrated vector autoregressive models. We show that such equilibrium relationships cannot be rejected for all three countries, while the evidence is stronger for the PRC and the Republic of Korea than for Japan. Our hypothesis tests show that the estimated Cobb–Douglas production functions display coefficients of capital and employment that sum up to 1 and broken linear trends that can be attributed to structural breaks and (changes in) total factor productivity growth. We observe a striking similarity between the experience in the Republic of Korea and the PRC, which gives some optimism that the PRC may be capable of graduating to high income, like the Republic of Korea.

Keywords: aggregate production function, comparative economic growth, economic development, Japan, People’s Republic of China, Republic of Korea

JEL Classification: E23, O47, O53, O57, P52

Suggested Citation

Murach, Michael and Wagner, Helmut and Kim, Jungsuk and Park, Donghyun, Trajectories to High Income: Growth Dynamics in Japan, the People’s Republic of China, and the Republic of Korea (October 9, 2020). Asian Development Bank Economics Working Paper Series No. 622, Available at SSRN: https://ssrn.com/abstract=3773546 or http://dx.doi.org/10.2139/ssrn.3773546

Michael Murach

University of Hagen (FernUniversitaet in Hagen) ( email )

Universitätsstrasse 41
Hagen, 58084
Germany

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen) ( email )

Universitätsstrasse 41
Feithstrathe 140
D-58084 Hagen
Germany
011-49-2331-987-2640 (Phone)
011-49-2331-987-391 (Fax)

Jungsuk Kim

Sogang University

Seoul 121-742
Korea, Republic of (South Korea)

Donghyun Park (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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