Factor Contributions to East Asian Economic Growth

Accounting for Human Capital

Data and source

While capital is often thought of as machinery, structures, and inventory, the stock of productive knowledge embodied in the workforce and its organization is also a form of capital. Investments in education, training, and oganizational experiments involve forgoing some consumption today in order to create better possibilities for production and consumption in the future. While such investments are difficult to measure quantitatively, many economists think that they are key to the growth process.

One might distinguish between the stock of knowledge and its embodiment in workers and organizations. The stock of knowledge available to an economy depends on its own investments in generating knowledge (scientific research) and its access to knowledge in other economies around the world. The knowledge embodied in workers and organizations in an economy depends on investments in education, training, and other forms of knowledge dissemination.

Within a growth accounting framework, human capital does not appear to be a major factor contributing to growth in the high performance East Asian eonomies. These economies have had relatively rapid growth in their wage-weighted stock of workers' years of schooling. This aspect of human capital accumulation can be thought of as an productivity factor that augments labor input. As the diagram above indicates, accumulation of this factor accounts for only about 10% of output growth in the high performance East Asian economies.

One might argue, however, that education, training, and new ideas have contributed to growth in the high performance East Asian economies in ways that are not captured by growth accounting methods. Some economists have emphasized that the spread of knowledge internationally does not happen automatically and that the acquisition of new ideas requires specific policies and investments. Others have pointed out that the accumulation of physical capital is neither necessary or sufficient for economic growth and that "capital fundamentalism," i.e. an emphasis on the accumulation of physical capital, has hindered development.

Economic Growth in East Asia