Professional Documents
Culture Documents
Year- 2021
1. ACKNOWLEDGEMENT 3
2. DECLARATION 4
3. LIST OF ABBREVIATIONS 5
4. TYPES OF CHARTS, DIAGRAMS, GRAPHS AND MAPS 6
5. ABSTRACT 7
6. INTRODUCTION 8
7. REVIEW OF LITERATURE
8. METHODOLOGY
9. RESULT AND DISSCUSSION
10. LIMITATIONS
11. CONCLUSIONS
12. RECOMMENDATIONS
13. REFERENCES
ACKNOWLEDGEMENT
I am acknowledging the valuable guidance and support of Dr. Ram Singh and Dr.
Harpreet Singh Dhaliwal, Asst. Professors at a Govt. of Punjab Institute. Being PhD
holders, hey have provided me with their valuable guidance and unique insights
which acquainted me with the basics of research. I am thankful to Mr. Kuldeep
Panghal, Research Scholar in Geography at Panjab University, Chandigarh who
provided me knowledge of research works related to my fields of geography and
energy.
I am very grateful to my parents for their constant love, support and encouragement
which always motivated me to lead on the right path and helped keep away any sort
of negativity. Last, but not the least, my friends deserve my special thanks for their
continuous support and encouragement to complete this project.
(YUVRAJ GUPTA)
DECLARATION
I declare that this written submission represents my ideas in my own words and where other’s ideas
or words have been included, I have adequately cited and referenced the original sources.
I also declare that I have adhered to all principles of academic honesty and integrity and have not
misinterpreted or fabricated or falsified any idea/data/fact/source in my submission.
I understand that any violation of the above will be the cause for disciplinary action by the
institute/University and can also evoke penal action from the sources which have thus not been
properly cited or from whom proper permission has not been taken when needed.
SIGNATURES -
LIST OF ABBREVIATIONS
ARDL Autoregressive
Distributed Lag
ARDL Autoregressive
Distributed Lag Model
CV Coefficient of Variation
MMR Maximum-Minimum
Ratio
WDI World
Development Indicators
Fig. 14 Map showing the change of min temperature Map with pie charts
during last years.
Asia is a developing and fastest growing region of the world. In 1960s, Asia made a sound
recovery known as ‘Asian Miracle’. Its sound recovery during global financial crisis has
changed its traditional picture among the advanced regions like North America and Europe. It
is highly unequal region in the world in terms of economic growth substantiated by the fact
that developing Asia covers only its three sub-regions namely East Asia, South-East Asia,
and South Asia out of five total regions. Therefore, the rising influence of Asia in global
economy and among advanced nations along with rising inequality raises the question that
what are the important factors driving rapid economic growth of Asian economies and if
these factors lead to their growth differences? Is there any possibility of equitable growth of
Asian economies in the long-run? If yes then what could be the contributing factors?. In
regard with this research problem there are few studies available related to determinants of
economic growth of Asia. In line with these research questions and research gap, this study
works with the objectives to study the trend and pattern of economic growth of Asian
economies; to investigate the level of income disparity across the Asian economies; to look
for convergence possibility across Asian economies; to explore the drivers of economic
growth of Asian economies; to suggest for appropriate policy options rapid and equitable
growth of Asian economies. This study is an empirical in nature covering the time period
from 1975 to 2015 and follows a macroeconomic approach. The methodology used in this
study is specified as per objectives. For the first objective, time series plots has been prepared
for variables of economic growth and trend pattern are observed for selected countries. For
second objective, income disparity has been observed through maximum to minimum ratio,
measure of dispersion, Gini index, and Theil index. For third objective, convergence
possibililty across Asian economies is predicted through βconvergence and σ-convergence.
For fourth objective, the inverted-U shaped Kuznets curve is estimated to investigate the
relationship between growth of per capita GDP and income inequality of Asian economies.
For objective fifth, the dynamic panel unit root test is conducted to see the stationary
properties of the variables under consideration. Then the ARDL model is adopted to examine
the long-run equilibrium relationship between the variables possibly explaining the economic
growth of Asian economies. The findings of this study imply that all Asian economies do not
reveal an increasing trend of growth over the period. There is a wide disparity among the
economic performance of countries from different income groups in respect of selected
economic indicators. Income disparities between Asian countries are narrowing down over
the period. There is an evidence of catch-up effect and convergence possibility across Asian
economies. Economic growth influences income inequality only in case of Japan, South
Korea, China, Iran, Thailand, Turkey, India, and Nepal while growth does not influence
inequality in case of Malaysia, Indonesia, Pakistan, and Philippines. The gross capital
formation, share of working age population, trade openness, agriculture productivity, energy
use, and gross primary school enrolment rate are positively related to economic growth while
inflation, domestic credit to private sector, childhood mortality and government consumption
expenditure are negatively related to economic growth. Therefore, this study suggests that
policy makers should increase the gross capital formation, agricultural productivity, energy
use, gross primary school enrolment rate, to efficiently utilize the rising share of working age
population, to increase trade openness by encouraging exports and imports. On the other
hand, inflation, government consumption expenditure, domestic credit to private sector
should be controlled as these are significantly negatively affects economic growth
INTRODUCTION
The determinants of economic growth have attracted increasing attention of economists over
last few decades. What causes economic growth? Why some countries grow faster than
others? What are the factors behind inequitable growth of nations? These issues and revival
of interest in economic growth led to blossoming literature which makes an attempt to
explore the determinants that causes economic growth. Economic growth becomes desired
fruit for every nation and economists emphasize on this concept of economic growth because
of the following reasons:
Asia is a developing and fastest growing region of the world comprising of sub - regions
namely East Asia, South East Asia and South Asia, Central Asia and The Pacific. The region
consists of 50 economies, which, according to the World Bank is divided into four income
groups, viz., High income, upper-middle income, lower-middle-income, and low income
economies. This classification by itself indicates the presence of disparity across Asian
economies in terms of economic growth. Rapid economic growth in China, India and in many
Asian countries has failed to bring the expected improvements in Quality of Life, and has
accompanied by increased income and non-income inequalities/disparities. Along with these
bottlenecks of economic growth, Asia has been confronting the problem of inequality in
income and wealth. This problem of inequality is substantiated by the fact that the emerging
and developing Asia covers only three sub-regions, viz., East Asia, South-East Asia and
South Asia. Within Asia, even these three sub-regions are highly unequal in terms of growth
performance which is measured in terms of per capita income. Within Asia, East Asia grew
faster than the rest of the world because it had the better policies, favourable demographics
and better location and initial level of education, while South-East Asia had an intermediate
position in all these aspects. On the other hand, South Asia performed worse on all these
indicators of growth, as it had the less appropriate policies and demographics. The varying
performance of countries on these determinants provides explanation for the differences in
growth performances of these sub-regions of Asia. In terms of per capita income, East Asia
achieved an unprecedented rate of growth, South-East Asia grew twice as fast as the world,
and South Asia grew at a slower pace than the world. Unlike other regions, it is not a
homogeneous entity; rather it comprises socially, culturally, geographically, politically and
economically heterogeneous countries. But, all these countries share one thing common to
them, i.e., rapid economic and social development. Earlier, Asian economies had 60 per cent
share of global GDP but after Industrial Revolution, when western countries gained
momentum in their growth, Asia’s growth showed downward trend and its share came down
from 60 per cent to just above 10 percent by early 1950s. But the Asian economy did not sink
and the period of expansion started soon in 1960s known as ‘Asian Miracle’. Now, Asia has
become the global hub of manufacturing and, information and technology services, although
vast majority of its population is illiterate and unemployed, but, it is the largest saving pool
and largest net lender to developed countries. It also has its drawbacks like lack of investment
in infrastructure and urbanization, and underdeveloped financial sector. The rapid growth
during last few decades has transformed Asia from a low-income region to middle income
region and the transformation to high income region is possible with the improvement in
productivity through innovation, human capital, and infrastructure. The growth of Asian
economies since WWII is among the successful growth stories in the history of economic
development.
With this growth achievement Asian economies have reduced poverty at a large scale and the
standard of living in these economies has also been improved. Therefore, nations of this
region started to influence the process of global economic development and to control over
the international governance in economic and financial spheres. The sound recovery of Asia
during global financial crisis of 2007-08 has changed its traditional picture among the
advanced regions like North America and Europe. The United States get benefited from
strong economic development of Asia. The U.S. and Asia along with global economies are
now knotted through powerful economic linkages as openness of the region to global trade
and finance is a key source of their growth. The rising influence of Asia in global economy
and among advanced nations raises the question that what determines rapid growth process of
Asian economies, what factors can reduce the rising inequality in the region. But, only a few
studies have been conducted that can answer to these questions. At Asia level, a relatively
less number of determinants of economic growth have been identified by the studies which
are either country specific studies, or multi-country studies.
Lee & Hong (2010) have explored the determinants of economic growth in Asia over the
period of 1981-2007 and by using the growth accounting framework it is found that robust
growth in capital accumulation is the source of rapid growth in developing Asia. Despite, this
study is a good piece of work in the direction of finding solution to the growth issues of Asia,
but it needs to be updated with the data from 2007 onwards till today.
A study by Ghazanchyan et al., (2015) has examined the drivers of growth in Asian
economies with a particular emphasis on the role of investment, the exchange rate regime,
financial risk, and capital account openness over the period of 1980 to 2012. But this study
has covered only South Asia and East Asia and it also ignored the other variables that have
significant impact on economic growth
A very recent study by Kim (2017) has examined the effect of consumption on economic
growth in Asia by taking 52 countries and 18 economic variables that are statistically
controlled. The one shortcoming of this study is that it covers the period of only four years
which ranges from 2012-2016 which is a very short period for analysis to reach at any
conclusion. Therefore, except these studies that also have some limitations, no such other
influential studies are available in the context of Asian economies so as to answer what
actually drives the growth of these economies; why growth differs across Asian countries;
and what are the chances of decline in the inequality levels of the region, and also the
likelihood of convergence to occur among the Asian economies. There is no such study
available in the literature which explores the drivers of economic growth of both developed
and developing Asian countries simultaneously so that policy lessons can be learnt from the
developed countries for growth of developing countries and convergence become feasible in
Asian countries. An in-depth research study is warranted in the context of the Asian
economies to identify the significant drivers of economic growth so that appropriate policy
measures may be formulated for attaining long-run growth and convergence across these
economies, and that also cover the limitations of the available studies on Asia. It is with this
backdrop, this research work proposes to identify important determinants of economic growth
in the case of Asian economies. With this backdrop, the broad objective of this research is to
explore the determinants of economic growth in Asian economies so as to know the reasons
for the disparities in their growth performances. This would help in chalking out appropriate
policy options for improving the scenario.
REVIEW OF LITERATURE
The present study is conducted with a motive of finding determinants of economic growth in
selected Asian countries. Since last few decades, a plenty of research has been conducted to
explore the determinants of economic growth. A number of theoretical as well as empirical
studies have made an attempt to find the factors that can explain the economic growth of a
nation. The present study is focused on the economic growth of Asian region as economies
from this region have experienced an extraordinary economic growth. Therefore, to meet this
objective, it is essential to review these theoretical and empirical studies and also to find the
research gap.
So, the present study reviews available literature on economic growth, various theories
developed in the area of growth, and empirical studies that have been conducted to validate
these theories of growth with the help of time-series data. This study focuses countries with
different levels of economic growth. It reveals that there is a wide disparity between the
growth levels of these countries.
FDI and economic Alfaro, L., Chanda, Alfaro et al., (2004) argued that FDI has a
growth: The role of A., Kalemli- great contribution in the economic growth
local financial Ozcan, S., & but at the same time it is found from this
markets. Journal of Sayek, S. (2004). study that the positive effects of FDI on
International economic growth can only be realized in
Economics the presence of developed financial markets
Economic growth in Lee J. & Hong K. Lee and Hong focus on the question that
Asia: Determinants (2012). why economic growth of Asia is so
and prospects. important to discuss. The answer lies in
significant performance of the Asian
countries since last few decades of 1960s
and 1980s and also lies in its role in pulling
the global economy out of recession
What drives China’s Yueh, L. (2013); China, which was one of the poorest
growth?. National countries once upon a time, has
Institute Economic CIA, 2017. transformed itself into the second largest
Review economy with $19.95 trillion GDP on
purchasing power parity basis in 2015 after
&
U.S. in just 30 years. China undertook
several reforms that began with the
Central Intelligence
termination of collectivized agriculture
Agency. (n.d.). The
gradually, and expanded to include the
World Fact Book.
gradual liberalization of prices, fiscal
decentralization, augmented sovereignty for
state enterprises, growth of the private
sector, and development of stock markets
and a modern banking system, and opening
up to foreign trade and investment.
Macroeconomic Biswas, S., & India is a fastest growing nation among the
determinants of Saha, A. K. emerging nations. It has successfully
economic growth in (2014). broken the so called Hindu growth rate and
India: A time series now tends to converge towards East Asian
analysis. SOP nations. Some determinants of growth that
Transactions on are found to be significant and have
Economic Research positive impact on India’s growth are gross
capital formation, employment, exports,
foreign direct investment and money
supply
"
The present research work has been conducted following an exploratory research design, and
it is empirical in nature. It follows the time series econometric approach to address its
objectives. The following is the description of the research methodology followed in this
piece of research work. Selection of Countries: In this study, 3 Asian economies have been
selected purposively out of 50 total Asian countries. These are: China, India and Turkey. This
sample includes upper-middle-income and lower-middle income. The upper-middle-income
economy China. The lower-middle-income economies are India and Pakistan. This
classification is based on the World Bank Analytical Classifications presented in World
Development Indicators and the economies are divided among income groups according to
2016 Gross National Income (GNI) per capita, calculated using the World Bank Atlas
method. Furthermore, the selection of these 3 economies is based on the availability of
complete time series data so as to form a balanced panel dataset.
Selection of Sample period: The sample period spans from 1975 to 2015. The selection of
the sample period is based on the availability of complete time series data to form a balanced
panel dataset as required by time-series econometric techniques.
Nature and Sources of Data: In order to comply with the objectives of the study, the macro-
level approach is followed by taking into consideration the secondary data concerning the
driving factors of economic growth. The significant source of data includes World
Development Indicators provided by World Bank, Penn World Table, and United Nations
Population Division.
Selection of Variables: In line with the extant literature, the economic growth of Asian
countries chosen for this study is measured by the proxy of GDP per capita (Constant 2010
US$). And, this economic growth variable is the dependent variable in this study. It is
denoted by EG. The independent variables are interpreted as the determinants of economic
growth of selected Asian countries which includes: Share of Working Age Population
(WAP), Gross Capital Formation (GCF), Gross Primary School Enrolment Ratio (PER),
Childhood Mortality (CM), Trade Openness (TO), Domestic Credit to Private Sector (CP),
General Government Consumption Expenditure (GCE), Inflation (INF), Agricultural
Productivity (AGP), and Energy Use (EN).
Empirical Analysis: The specification of the empirical research method followed in this
research work is based on the objectives of the study. Trend patterns for the selected Asian
nations are observed on economic variables like gross capital formation, share of primary,
secondary and tertiary sectors in GDP, primary school enrolment ratio, life expectancy at
birth, under-5 mortality rate, share of broad money in GDP, credit to GDP ratio, foreign
direct investment, international openness, exports and imports, general government
consumption expenditure, labour force, and petroleum consumption with the use of bar
graphs and trend lines. The level of income disparity across Asian countries is observed
through maximum to minimum ratio, measure of dispersion, Gini index, and Theil index. The
application of β-convergence, and sigma convergence are used to predict about the
convergence possibility across the selected economies. The inverted U-shaped Kuznets curve
is estimated for selected Asian countries to investigate the relationship between growth of per
capita GDP and income inequality.
Asia is a largest and most populous continent on the globe with dynamic spheres of
economic, social, and scientific activities.
The developing Asian economies have recorded an impressive growth over a period of
around thirty years especially from 1990 to 2010. This growth has improved the living
standard of people and also reduced the levels of extreme poverty in this region. During this
period, i.e. from 1980 to 2009, the real per capita GDP of Asia has shoot up from $3.3 trillion
to $24.5 trillion which is an increase of 7.5 times as compare to three times increase in
world’s real per capita GDP during the same period.
After World War II, the Asian growth was led by rapid economic growth of Japan in 1960s,
China in early 1980s. China witnessed a double-digit growth after joining the World Trade O
rganization in early 2000s and became driving force of the Asian economy. since 1980s, the
South Asian economies also witnessed an impressive rate of economic growth. The growth of
output in India and Pakistan very rapid as compared to other regions since 1980s. The
investment rates of these countries are not impressive but the output of India and Pakistan has
grown more rapidly since 1980s. The debt ranking of India and Pakistan by World Bank has
also improved.
The noticeable fact from the growth experience of Asia is the rising inequality with the
increase of growth. The developing Asia has experienced a rapid economic growth in recent
decades along with the noticeable poverty reduction. But this achievement of Asia is
followed by the rising inequality. The rapid growth of developing Asia is driven largely by
China and India with annual growth of GDP at 9.9 percent and 6.3 percent respectively.
Asia’s growth is driven by technological change, globalization, and market oriented reforms
that have distributional consequences.
China, which was one of the poorest countries once upon a time, has transformed itself into a
second largest economy with $19.95 trillion GDP on purchasing power parity basis in 2015
after U.S. in just 30 years (Yueh, 2013, CIA, 2017). The per capita GDP of China is
estimated at $6893.77 constant 2010 in 2016. The gross domestic savings in 2016 are 46.5
percent of GDP and gross fixed capital formation is 42.85 percent of GDP.
This figure depicts the growth of GDP per capita constant 2010 US$ of China from 1975 to
2015. There is a continuous increase in GDP per capita of China but the rise in GDP per
capita is almost stable and steady from 1975 to 1990 after that it started to rise rapidly.
Therefore, it is necessary to study the reasons behind the continuously increasing growth of a
nation.
This figure shows the Gross capital formation as per cent of GDP of China from 1975 to
2015. The figure reveals that although there are many fluctuations in the share of gross
capital formation in GDP but over the period it has an increasing trend. The figure 3.5.3
picturizes the structural change that took place in China from 1975 to 2014. The percentage
share of agriculture sector in GDP comes domwn from that of near 31 percent to below 10
over the specified period.
Year FDI
1975 0
1980 0.03
1985 0.54
1990 0.97
1995 4.88
2000 3.48
2005 4.55
2010 3.99
2015 2.19
Source: World Development Indicators, World Bank
This figure shows the percent share of foreign direct investment in GDP of Japan from the
period 1975 to 2015. The FDI in China shows an increasing trend over the period and
witnessed a sudden increase during 1992.
This figure shows the exports and imports as percent of GDP of China from 1975 to 2014. It
also reveals that over the period exports of the nation are more than its imports except the
period from 1979 to 1980 and from 2011 onwards when imports are more that its exports.
This figure depicts the growth of GDP per capita constant 2010 US$ of India from 1975 to
2015. The per capita GDP of India witnessed a continuously increasing trend over the
specified period. The pace of rise in per capita GDP becomes rapid only after 2005.
This figure picturizes the structural change that took place in India from 1975 to 2014. The
percentage share of agriculture sector in GDP comes down from that of near 39 percent to 17
over the specified period which further need to be declined. On the other hand, the percentage
share of industry sector in GDP moved between 26 percent to 30 percent which is not
satisfactory as a condition for economic growth while that of services sector increased from
34 percent to near 51 percent from the year 1975 to 2014 which is not fully but quite
satisfactory. Therefore, India needs to work in the direction oof structural change so that the
share of industry and services should be increased and the share of agriculture should be
declined
YEAR FDI
1975 -0.01
1980 0.04
1985 0.05
1990 0.07
1995 0.60
2000 0.78
2005 0.90
2010 1.65
2015 2.08
This figure shows that broad money as percent of GDP and credit to GDP ratio as percent of
GDP of India over the period of 1975 to 2014. This figure reveals that the broad money
which is a currency, demand deposits, time deposits, and other financial assets outside banks,
are with resident sectors other than central government is increased continuously from 24
percent to 78 percent. On the other hand, credit to GDP ratio which is credit given to private
sector by financial corporation has also increased from 15 percent to 52 percent. There is a
need to increase the share of credit to GDP ratio for India so that private sector can
participate more in the growth process of a nation.
This figure shows the exports and imports as percent of GDP of India from 1975 to 2014. It
reveals that over the period imports of a nation are more than its exports. The imports are also
essential for economic growth nut it increases fiscal burden and in the long run it is exports
that leads growth by raising foreign exchange earnings. Therefore exports should exceed
imports.
This figure depicts the growth of GDP per capita constant 2010 US$ of Pakistan from 1975 to
2015. The per capita GDP of Pakistan witnessed a continuous increasing trend over the
specified period with lesser fluctuations.
This figure picturizes the structural change that took place in Pakistan from 1975 to 2014.
The percentage share of agriculture sector in GDP comes down from that of near 32 percent
to 25 percent over the specified period which is a very minute change I relative to other
sample countries. On the other hand, the percentage share of industry sector in GDP also roll
on between 20 to 25 percent while that of services sector inrceased from 44 percent to near
54 percent from the year 1975 to 2014 which is quite satisfactory. Therefore, it may among
one of the reasons for Pakistan to lag behind other countries in terms of economic growth.
The nation’s government needs to change the structure of economy according to structural
growth theories to achieve higher rate of growth.
YEAR FDI
1975 0.22
1980 0.27
1985 0.42
1990 0.61
1995 1.19
2000 0.42
2005 2.01
2010 1.14
2015 0.36
Source: World Development Indicators, World Bank
This figure shows the percent share of foreign direct investment in GDP of Pakistan from the
period 1975 to 2015 which increased only in late 1990s and in late 2000s.
This figure shows the exports and imports as percent of GDP of Pakistan from 1975 to 2014.
It reveals that over the period exports of the nation are less than its imports but disparity
between exports and imports have decreased over the period.
Since 19th century, the world has been witnessing a wide differences in national income
across nations which in turn producing unprecedented levels of inequality across economies.
Also the present scenario of the world economy witnessing high and rapid growth that gives
rise to inequalities between nations where developed nations have achieved the steady state
of growth while developing countries are trying hard to catch up with the advanced nations.
Therefore, this scenario has shifted the attention of economists and other social scientists
from income differences within nation to income differences between nations.
The rising income inequalities have been observed on an average in every region where Asia
is no exception and also inequality is highest in Asia. Although the Asian economies have
presented remarkable achievements in growth and poverty reduction in recent decades, but a
clear rise in inequality has also been noticed between these nations.
Zhuang et al. (2014) argued that the rapid growth of Asia as fostered by technological
progress, globalization and market-oriented reforms in last few decades favoured skilled
labour, capital, urban and coastal areas which to a great extent explain a large part of the
rising trends in inequality in the continent.
Kanbur et al. (2014) also argued that the main drivers of Asia’s rapid economic growth are
the basic driving forces behind the rising inequality, both income and non-income, in the
region. The study specifically mentions the significance of increasing skill premiums, returns
to human capital, falling labour income shares, emergence of vast economic opportunities
due to trade and financial integration, technological progress, market oriented reforms, rising
spatial inequality due to agglomeration economies, and rising unequal access to opportunity
to earn income and to build human capital primarily caused by institutional weakness, market
distortions and failures and social exclusion as the main contributing factors of rising
inequality in Asia. This high inequality could undermine social cohesion, political stability,
and sustainability of growth which are detrimental to efficiency and growth. Hence,
appropriate policy options are at least warranted to reduce the levels of inequality between
countries in Asia.
The review of extant literature on regional inequality clearly infers that there are three groups
of inequality measures, viz., dispersion, Gini and entropy indices. These measures are briefly
introduced as under:
1. Measure of Dispersion: The measure of dispersion that is used to capture the between-
country inequality is the unweighted Coefficient of Variation (CV) for per capita GDP. The
following formula is used for the purpose:
where i y is the per capita GDP of country i ; n is the number of countries under consideration
(12); and y is the arithmetic mean of i y .
3. Measure of Entropy: Also we used the Theil index to measure the betweencountry
income inequality weighted by income share (not population share) which is given by the
following formula:
where i p is the proportion of population of county i to the total population of all the 3
countries selected from Asia; and yi is the proportion of per capita GDP of country i to the
total per capita GDP of all the 3 countries.
In this study we use these three measures of between-country income inequality because no
measure is free from limitations.
Thus, a common practice is to use a variety of measures and compare their results. The next
section of this chapter presents the results of these three indices of between-country income
inequality.
In this study, 3countries of Asia, viz., China, India and Pakistan are considered as
representatives of upper-middle-income and lower-middle income.
We have taken the per capita GDP at constant 2010 USD as the measure of well-being of
nations for the period 1975 to 2016 from the WDI of World Bank.
The Table 4.1 presents the average growth rates of per capita GDP.
It is observed from Table 4.1 that the average annual growth rate of per capita GDP for high-
income countries was initially high during 1970s and then declined over last two decades.
This means their economic growths have been slowed down gradually.
Every nation aims at to attain higher rates of economic growth, but to achieve higher
economic growth with equal distribution of income is an ultimate goal of development.
Economic theory suggests that the aggregate output in an economy influences the inequality
level, and this relationship differs between rich and poor countries.
The theories related to income inequality and economic growth postulate that inequality
affects growth through a micro channel. The unequal distribution of income among
households leads to differences in the aggregate consumption and demand structure which in
turn affect the investment allocations particularly investment in human capital
In this regard, Kuznets has given the inverted-U curve hypothesis on the relationship between
economic growth and income inequality. Kuznets (1955) claims that the growth of per capita
GDP has an impact on the level of inequality in a country such that in the initial stages of
growth, inequality increases and in later stages inequality decreases after reaching a
maximum at certain level of per capita GDP. Thus, the Kuznets curve is inverted U-shaped.
This curve links the evolution of the Gini coefficient as a measure of inequality to the average
income level of an economy. The policy implication is that the higher economic growth may
help in reducing income inequality.
where Gi is the Gini coefficient and it y is the average growth of per capita GDP during a
period. The Kuznets hypothesis holds only if the coefficient of 1 is positive and 2 is
negative. In this model, the quadratic term signifies the inverted U-shape structure of the
Kuznets curve.
In this era of globalization, countries in the world have been competitive in all economic
activities. And, this competitiveness of an economy is primarily associated with the economic
performance that is generally measured by economic growth. Economic growth is one of the
vital indicators of the level of economic welfare of the society and the main macroeconomic
objective in the policy circle. Economic growth is considered as a main factor in the well-
being and prosperity of billions of people. The main policy objective of a country is thus, to
accelerate the growth of the economy. For this purpose, it is highly essential to identify the
conclusive determinants of economic growth.
Keeping in view all these aspects, we hypothesize that in the selected Asian countries the
economic growth can be determined by the factors including labour, physical capital, human
capital, agricultural productivity, energy use, government consumption, financial
development, inflation and trade openness. The directions in which these macroeconomic
factors determine economic growth in the selected Asian countries are enlisted in Table
source : www.economicshelp.org
Economic Growth Economic Growth is measured by the annual growth of GDP per
capita (constant 2010 US $), 1980 to 2015
Gross Capital It is the gross capital formation as a percent of GDP. It has been
Formation (GCF) argued that the gross capital formation positively influences the
economic growth either by increasing the physical capital stock
in an economy directly, or promoting the technology indirectly.
Childhood Mortality It is measured by the under-5 mortality which is the total number
(CM) of deaths per 1000 live births of newborns before reaching age
five. The decline in childhood mortality stimulates investment in
physical and human capital and generates an income stream
which promotes economic growth.
Energy Use (EN) Energy use refers to use of primary energy before transformation
to other end-use fuels, which is equal to indigenous production
plus imports and stock changes, minus exports and fuels supplied
to ships and aircraft engaged in international transport. It is the
annual growth of per capita energy use in kg of oil equivalent.
Bhattacharya et al. (2016) found a significant positive impact of
energy use on economic growth. An increase in energy use
drives capital accumulation, which favours economic growth.
Trade Openness (TO) It is the total trade to GDP ratio expressed as percentage. The
trade openness has positive effects on economic growth.
Now, on the basis of the above defined theoretical construct regarding the determinants of
economic growth in the selected Asian countries, and for the purpose of empirical analysis,
the following linear panel model has been formulated which includes intercept and trend
components.
WAP POSITIVE +
GCF POSITIVE +
PER POSITIVE +
CM NEGATIVE -
CP NEGATIVE -
GCE NEGATIVE -
EN POSITIVE +
AGP POSITIVE +
INF NEGATIVE -
TO POSITIVE +
The determinants of long-run economic growth in the selected 3 Asian countries have been
identified. It is inferred that the determinants including working age population, gross capital
formation, primary school enrolment, childhood mortality, credit to private sector,
government consumption expenditure, energy use, agricultural productivity, inflation and
trade openness are statistically significant in influencing the economic growth of Asian
countries. Among the determinants, working age population, energy use, government
consumption expenditure and agricultural productivity are more important. Therefore, the
policy makers’ focus should be on these factors, if they wish to accelerate the pace of the
growth of Asian economies in the long-run.
LIMITATIONS
1. The present study excludes some of the important factors of economic growth such as
R&D, Institutions, Infrastructure and Government Policies among others.
2. The present study uses the balanced panel time-series econometric techniques, and thus,
excludes some other countries of Asia that have exemplary growth story like that of
Singapore.
3. The present study assumes 41 years as the long-period thereby, covering the time duration
from 1975 to 2015. So, it excludes the period of Asian Growth Miracles of 1960s. Since, the
time-series data have not been available for all the variables considered for the years 2016
and 2017, the study is limited to the time upper bound of 2015.
CONCLUSION
Economic growth is a desired fruit for every nation and its policy makers. The economic
growth itself leads to welfare of people and improves the quality of life through the channel
of human development. It also leads to alleviation of poverty by increasing employment
opportunities. Since last few decades, determinants of economic growth become the main
area of concern for economists and academicians. It is from the period of Mercantilism to the
new era endogenous growth theories various factors have been proposed to be responsible for
long-run economic growth. The trend analysis of the performance selected Asian countries on
selected economic variables show that there is a wide disparity in respect of the performance
of selected Asian nation on the variables of human capital, financial development, share of
exports and imports in GDP, sectoral composition, and trade openness. And, in recent
decades, empirical research studies have also been focused on the exploration of the
determinants of economic growth. The varying performance of countries in account of these
determinants explains the reasons for income inequality between countries. Asia is a great
example of inequality as it is highly unequal region of the world. There are very much
income inequalities between sub-regions of Asian i.e. East Asia, South-East Asia, and South
Asia. However, despite of these inequalities, illiterate and unemployed population, Asia is
among successful growth stories in the history of economic development since WWII. It is
the largest saving pool and largest net lender to developed countries. It emerged as global hub
of manufacturing, and information technology services. It is very fascinating to know the
factors behind the successful growth of Asian economies, and also to explore the factors
responsible for unequal growth of Asian economies. The factors that leads the growth of high
income countries and due to which factors poor countries lacks in growth. The economic
growth of each selected Asian country (INDIA, CHINA AND PAKISTAN) has increased
over the period of 1950 to 2015. The performance of each Asian nation has improved in
respect of selected economic indicators. Nevertheless, there is huge difference in the pattern
of economic growth of countries from the income groups of high income, upper-middle
income, lower-middle income, and low income countries. The high income and upper-middle
income countries are having a lower share of agriculture sector while the share of industry
and services sector has increased to higher level following the structural growth theories. On
the other hand, the share of agriculture has also declined in low and lower-middle income
countries but it is still very high relative to high and upper-middle income countries.
FINDINGS
China’s GDP per capita has increased continuously over the period but this rise
becomes rapid and steep only after 2007. China has good human capital, rising
working-age population, favourable structural pattern of growth, increasing share of
exports over imports, increased FDI, rising petroleum consumption.
There is a steady increase in GDP per capita of Pakistan over the period. Pakistan
performed better only in terms of increasing trade openness, working-age population,
and rising petroleum consumption. Otherwise, the gross capital formation is low,
human capital levels are low, low FDI, declining gross capital formation, and higher
imports over exports.
The rise in GDP per capita of India is gradual till 2001 but thereafter it started to
increase rapidly. India enjoys rising trade openness and FDI especially in 2000s and
2010s, rising share of working-age population, rising petroleum consumption, rapidly
rising imports and exports, and broad money. The gross capital formation fluctuated
in the range of 20 to 40 percent.
RECOMMENDATIONS
There is a lot to do for Pakistan, China and India to attain higher level of economic
growth. The government of the countries should increase the share of exports over
imports in GDP because a huge gap between these two can create fiscal problems
which are not healthy for economic growth. The government of these countries should
make efforts to improve the levels of its human capital and gross capital formation.
Although there is an improvement in the economic performance of these countries but
these countries still far lag behind the countries from other income groups.
The Coefficient of Variation, Gini index, Theil index reveals that the between nation
inequality is narrowing down in Asian countries. It means the gap between high
income and low income countries in terms of income is decreasing. It is the
responsibility of the governments of low income countries to increase trade openness
of their economies where they should encourage the import of technology from its
strong companions and by imitating that technology, new products should be
produced for exports. It is possible only if the human capital in these countries is
skilled enough to imitate the technology and to produce new products like Japanese
people.
The policy circle should focus on mobilizing resources for increasing capital
formation so as to enhance the total factor productivity growth of economies.
The primary school enrolment has statistically significant positive effect on economic
growth. It is warranted that the primary school education should be made compulsory
for everybody so as to get the benefits of improved human capital. The enrolment
ratio can be increased by reducing the cost of schooling, improvements in school
quality, improving the labour market conditions, and by reducing the information
barriers regarding returns to education.
The childhood mortality rate is found to have statistically significant negative effect
on economic growth. The healthcare sector should priorities the programmes and
policies aiming the reduction of childhood mortality so as to get the long-run benefits
of improved human capital. It is suggested to decrease the childhood mortality with
the provision of high impact health and nutrition, with the provision of knowledge
regarding family care practices, and with improved water and sanitation facilities.
The agricultural productivity is found to have significant positive effect on economic
growth. It is suggested in raise the levels of agricultural productivity by providing
irrigational facilities, agricultural education to farmers, supply of quality inputs, and
to conserve and enhance the soil. Besides, productivity per worker in agriculture
should be enhanced may be through the application of scientific methods of farming
and by adopting the agricultural practices/activities to climate change effects.
To embark on the path of economic growth, inflation should be in control as it is
significantly negatively affects economic growth. The policy makers should devise
monetary and fiscal policies in such a way so that inflation should be in control.
The limits should be put on the domestic credit given to private sector as it has
significant negative effect on economic growth. In other words, the domestic credit to
the private sector should be optimized.
The government consumption expenditure should also be controlled as it has
significant negative effect on economic growth. There should be an enquiry into the
sectors where it is essentially required and where it is extravagant in nature and
therefore, it should be cut down accordingly.
The sustainable energy use should be promoted to achieve elevated economic growth
in the long-run.
Last but not the least is that the policy circle should widen and intensify the
liberalization and globalization in Asian countries in order to have the growth
stimulating benefits of international trade
REFERENCES