WP/02/13 IMF Working Paper Sources of Economic Growth in East Asia: A Nonparametric Assessment Shigeru Iwata, Mohsin S. Khan, and Hiroshi Murao INTERNATIONAL MONETARY FUND© 2002 International Monetary Fund wp/02/13 IMF Working Paper IMF Institute Sources of Economic Growth in East Asia: A Nonparametric Assessment Prepared by Shigeru Iwata, Mohsin S. Khan, and Hiroshi Murao! January 2002 Abstract "The views expressed in tis Working Paper af those of the authors) and do not necessarily represent those ofthe IMF or IMF policy. Working Papers describe research in progres by the author(s) and are published to elicit comments and to further debate. The conventional growth-accounting approach to estimating the sources of economic growth requires unrealistically strong assumptions about the competitiveness of factor markets and the form of the underlying aggregate production function. This paper outlines a new approach utilizing nonparametric derivative estimation techniques that does not require imposing these restrictive assumptions. The results for East Asian countries show that output elasticities of capital and labor are different from the income shares of these factors, and that the growth of total factor productivity over the period 1960-95 has been an important factor in the overall growth performance of these countries. JEL Classification Numbers:C14, 047, 053 Keywords: East Asia; TFP growth; nonparametric regression Author's E-Mail Address: iwata@ku.edu, mkhan@imf.org, murao@nebuta.ac.ip. ‘Shigeru Iwata is Associate Professor at the University of Kansas, and Hiroshi Murao_ is Associate Professor at Aomori Public College in Japan. The authors are grateful to Jahangir Aziz, Paul Cashin, Eduardo Ley, Sam Ouliaris, Abdelhak Senhadji, and Danyang Xie for helpful comments and suggestions on an earlier draft.Contents Page L Introduction... I, Estimating the Sources of Economic Growth Il, Estimation Method. IV. _ Estimation Results V. Conclusion 14 Tables 1, Conventional Estimates of TEP Growth of East Asian Countries, 1960-95. 2. Nonparametric Estimates of TFP Growth of East Asian Countries, 1960-95. 3. Comparison of Estimates... a 4, Nonparametric Estimates of TFP Growth of East Asian Countries with Constant Retums to Scale, 1960-95 Appendices I. Data Description ..n.0. I _ Distribution of Output Elasticitics..... UL Kemel Function and Bandwith Selection. IV. A Monte Carlo Experiment References..