UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIET NAM THE NETHERLANDS VIET NAM –THE NETHERLANDS PROGRAMME FOR MASTER OF DEVELOPMENT ECONOMICS ---------------------------------- DETERMINANTS OF ECONOMIC GROWTH IN A PANEL OF ASIA PACIFIC COUNTRIES FINAL THESIS Supervisor: Nguyen Hoang Bao Student: Tran Luu Quoc Vuong Class: MDE-16 ---------------------------------------------- HO CHI MINH CITY, DECEMBER 2013 TIEU LUAN MOI download : skknchat@gmail.com APPENDICES A: List of chosen countries and territories in Asia Pacific Region 51 B: Scatterplot matrix of variables 52 C: Tests 53 LIST OF FIGURES Figure 3. Conceptual framework of the study 14 Figure 4. Growth rate versus Level of Per capita GDP (simple relation) 27 LIST OF TABLES Table 3.1 Summary of variables 20 Table 4. Summary Statistic on the sample observations 29 Table 4.
Correlation on the sample observations 30 Table 4. Basic Cross-Country Growth Regression 31 Table 4. Heteroskedasticity – White test 32 Table 4. Basic Cross-Country Growth Regression (robust) 33 Table 4.
Multicollinearity testing 34 Table 4. Restricted Model (1) 35 Table 4. Restricted Model (2) 36 Table 4. Model Comparison 37 Table 4.
Extended models 43 TIEU LUAN MOI download : skknchat@gmail.com ABBREVIATIONS IMF : International Monetary Fund WB : World Bank UN : United Nations GDP : Gross Domestic Products GNP : Gross National Products R&D : Research and Development OECD : The Organization for Economic Co-operation and Development TIEU LUAN MOI download : skknchat@gmail.com Table of Contents 1. Objectives of study. Scope of the research. Structure of the thesis.
CHAPTER 2: THEORETICAL AND EMPIRICAL BACKGROUND. CHAPTER 3: RESEARCH METHODOLOGY. CHAPTER 4: DATA ANALYSIS. Growth rate and convergence.
Regression Results for Growth rates .3 The Determinants of Growth rate.4 The extended models. 44 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal 5. CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS. Main findings and policy implications.
Limitation of the research and Recommendation for further studies .48 Tran Luu Quoc Vuong – MDEk16 1 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal 1. Problem statement Nowadays, there are over 200 countries on over the world with different institutions, with different growth rates. These growth rates vary hugely across countries and between developing countries to developed countries. According to recent surveys of many international organizations (IMF, WB, UN and so on), de- veloping countries and economies in transition continue to register much stronger growth than developed economies.
After the end of the World War II, the world started to recover economic and the growth became an important part of economic science. Economists have tried to apply other theories with a lot of empirical model to understand the process of economic growth and explain enormous differences in economic performance across countries. In the early, economists used Keynesian theories to discuss about the stability of the growth path. Next, they focused on steady state growth rates exogenously determined by technological progress.
After that, Solow (1956) and Swan (1956) became the pioneers who enriched neoclassical economic growth model, and followed by a lot of others. From 1980s, economists developed growth theory, which use endogenous economic growth model to evaluate the roles of knowledge, innovation and human capital. Improvements of economic theories and hundreds of researches have pro- vided acceptable explanation for a particular phenomenon of recent decades: the great divergence in economic performance. But, indeed, the income of underde- veloped economies, as a whole, are failing to catch up the income of the developed countries.
Realizing this inadequacy, economic growth studies have shifted their focus to find out the reason of this problems. There were a lot of researches discuss about this problem, such as: Solow (2000), Aghion and Howitt (1998), Kenny and Williams (2001), Temple (1999), Tran Luu Quoc Vuong – MDEk16 2 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal Bosworth and Collins (2003) and Rogers (2003). They identified main contribu- tions to the recent growth literature, especially relevant institution factors. The main objects these economists aimed were developing countries in the Asian Pa- cific area.
They wanted to understand how recent developments in the growth lit- erature contribute to economic development of Asian Pacific countries. In this study, the research examine the relationship between per capita growth rate to a set of quantifiable explanatory variables with a conditional con- vergence term: the growth rate rise when the initial level of real per capita GDP is low relative to the staring human capital and for given values of other policies, institutions and national characteristic variables. This research will use panel data of 25 countries and territories of Asian Pacific region for the period of 1990 - 2010. This study use panel data approach and apply three-stage less squared re- gression to examine the determinants of the growth rate.
The regression, which uses panel data, has many advantages with regards to typical cross-country regres- sion that was advanced by Raftery (1995), Sala-i-Martin et al. First, using panel data, we will eliminate constraint by limited number of countries available. Second, this method allows addressing the inconsistency of empirical estimates. This inconsistency appears with omitted country-specific effects correlated with other regressors, or with endogenous variables which assumed to be exogenous.
Objectives of study This research will examine the relationship between per capita growth rate and a set of quantifiable explanatory variables: human capital (education and health), policies, institution and national characteristics. From empirical studies, for given initial levels of state variables (including physical and human capital), the economic growth rates have positive relation to the rule of law, the investment ratio and negative relation to the fertility rate, the ratio of government consumption to GDP and the inflation rate. In the case of the terms of trade and the extent of Tran Luu Quoc Vuong – MDEk16 3 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal international openness, with fair movements, the growth will increase but the latter effect is surprisingly weak. The research will define which factors affect to the growth rate of Asian Pacific developing countries, including Vietnam.
It also extend to evaluate some special countries, which have huge population size, such as: China, India; or de- veloped countries, such as Japan, Australia, Singapore and so on 1. Research questions This research aims at answering the following questions: The relationship between per capita growth rate and a set of quantifiable explanatory variables? Which variables are significant ones to economic growth? Intensity of impact of these factors to economic growth of the Asia Pacific region? 1. Scope of the research The research focuses on examine the convergence hypothesis implies that the growth rate of real per capita GDP would tend to be inversely related to the level of initial real per capita GDP, and the role of a set quantifiable explanatory variables. The chosen countries are 25 countries in Asian Pacific region, and some special countries which have huge population size (China, India) or specific char- acteristics (Japan, Singapore).
This research only examines in the period of 1985 - 2010 because lacking of GDP data before 1980 for all countries in this region. Structure of the thesis The research will be organized with five chapters. The chapter one has structure as above: explain the reason why we choose this topic, identify the prob- lems that the research need to examine with some major research questions and the scope of the research. The rest of this research has four chapters.
Chapter two Tran Luu Quoc Vuong – MDEk16 4 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal shows a brief view of theoretical background of growth model, from the neoclas- sical growth models to the endogenous growth models, and the role of trade and institutions on the growth rate as well. A review of empirical studies makes clearly about results of different models when applying to explain recent developments. In chapter three, we will highlight the research methodology, including con- ceptual framework and variable descriptions. We will have a briefly discussion about the reason why we choose these variables, how to enter them into the equa- tions after introducing the general econometrics model.
Besides, the process out- line which we use to analyze data, is also mentioned in this chapter. Chapter four will show the regression results of the models. We will analyze and get findings to answer the questions in the chapter 1. We also compare findings to results of other empirical studies.
And at chapter five, we resumes main findings and reevaluate factors which have significant influence to growth rate of an economy. This chap- ter also identifies the limitation and implications for further study. Tran Luu Quoc Vuong – MDEk16 5 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal 2. CHAPTER 2: THEORETICAL AND EMPIRICAL BACKGROUND 2.
Theoretical background: In the 1950s, growth theory was composed mainly of the neoclassical model, developed by Ramsey (1928), Solow (1956), Swan (1956), Cass (1965) and Koopmans (1965). One feature of this model is the convergence property with the characteristic of diminishing returns to capita in a closed economy, where tech- nological progress is assumed to be exogenous and there are same technical op- portunities across countries. This theory said that, the predicted growth rate will higher with the lower starting level of real per capita gross domestic product. If all economies were naturally the same, except for their starting capital intensities, the convergence would apply in an absolute sense; it means that, poorer economies typically grow faster per capita and tend thereby to catch up to the richer economies.
However, if they differ from a lot of factors, such as rate of birth, willingness to work, technology accessing, government policies, the convergence force applies only in a conditional sense. The predicted growth rate will be higher if the starting level of per capita GDP is low in relation to its long–run (steady state) position. For example, a poor country would not tend to grow rapidly if it also has a low long–term position which possibly because its public policies are unfavorable or its saving rate is low. But along the time has been changing, this model showed its own limitation.
So, a new wave rose in economic growth theory. Growth theorists of 1960s as- sumed that technological progress is exogenous to the growth rate, will make the economy temporarily grows in short term but not in long term. But, unfortunately, while endogenous factors, like as the saving rate and population growth, determine the steady state or ceteris paribus of an economy, the technological progress de- cides the growth rate of the steady state. Thus, we can use model of growth to explain everything but long-run growth.
Tran Luu Quoc Vuong – MDEk16 6 TIEU LUAN MOI download : skknchat@gmail.com Determinants of economic growth in a panel of Asia Pacific countries Thesis Proposal And as a consequence, since the 1980s, the economic growth theory had a new sense. Several variables treated as exogenous before became endogenous. The Ramsey-Cass-Koopmans model endogenized the savings rate, and in conse- quence, the saving rate may not be constant along the transition to the long run steady state. Other different assumptions, fertility was treated as endogenous in researches of Galor and Weil (1996), Cigno and Rosati (1996) and Barro and Becker (1989).
Besides, in Solow – Swan model, the explicit consideration of hu- man capital was not mentioned, and this absence motivated work on endogenous growth theory and a series of idea-based model. In the mid-1980s, a group of growth theorists dismissed the Solow-Swan model because they did not satisfied with common accounts of exogenous factors determining long-run growth.