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HUMAN CAPITAL AND ICT PER CAPITAL CONTRIBUTION TO EAST ASIAN PRODUCTIVITY
GROWTH
Author(s): ELSADIG MUSA AHMED
Source: International Social Science Review, Vol. 85, No. 1/2 (2010), pp. 40-55
Published by: Pi Gamma Mu, International Honor Society in Social Sciences
Stable URL: http://www.jstor.org/stable/41887430
Accessed: 15-03-2017 08:20 UTC
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40 VOLUME 85, NUMBERS 1 & 2
Introduction
Literature Review
According to a report issued by ASEAN in 2003, there are both benefits and chal-
lenges in measuring and monitoring a digital economy driven by ICT.1 The Organizatio
for Economic Cooperation and Development (OECD) concurs, finding that ICT provides
an important catalyst for growth and productivity.2 Indeed, recent studies by Poh-Kam
Wong and Kaushalesh Lai show the positive effects of ICT on productivity and output
growth in Singapore and India, repectively.3
The e-ASEAN Initiative is illustrative of one of the efforts undertaken by ASEAN5
leaders in developing the ICT sector in the region. This initiative established a region-wid
approach in making comprehensive use of ICTs in business, government, and society at
large, which facilitated the liberalization of trade and investments in ICT products and
services. In order to develop effective policy formulation and enhance collaboratio
among the ASEAN5 countries to promote the development of the ICT industry, empirical
evidence is required to demonstrate the contribution of ICT to economic growth in these
countries. This can help bridge the digital divide between ASEAN5 and other Asian
Pacific countries, as well as among the ASEAN5 countries. To accomplish this, thes
governments must promote universal and affordable access to information and communi
cations services.4
Much of the recent debate on the sources of economic growth in Asia has been strongly
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INTERNATIONAL SOCIAL SCIENCE REVIEW 4 1
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42 VOLUME 85, NUMBERS 1 & 2
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INTERNATIONAL SOCIAL SCIENCE REVIEW 43
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44 VOLUME 85, NUMBERS 1 & 2
They conclude that the elasticity of IT remains positive and statistically significant.
Furthermore, they find 'firm effects' to be highly significant. Brynjolfsson and Hitt sug-
gest that these effects may account for as much as half of the productivity benefits cred-
ited to IT in previous studies.40
These findings have been verified and challenged in two key studies. Frank Lichtenberg
obtained similar results using much of the same data. In fact, his study indicates that the
marginal product of IT was at least six times greater than the marginal product of other
types of capital. In contrast, Gary Loveman estimated a Cobb-Douglas production fune-
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INTERNATIONAL SOCIAL SCIENCE REVIEW 45
where
a is the output elasticity with respect to capital;
ß is the output elasticity with respect to labor;
X is the output elasticity with respect to ICT;
6 is the output elasticity with respect to human capital;
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46 VOLUME 85, NUMBERS 1 & 2
For the purpose of this study, Equation (3) was transformed by dividing each term by
K (capital input). The output elasticity was calculated with respect to labor deepening, ICT
intensity, and human capital intensity, i.e., ß = ß' + >S2, X = Ài + A2, and 0 = 01 + 02,
respectively. As shown in Dollar and Sokoloff as well as Elsadig,47 the production functio
can be expressed as follows:
Here,
Aln (GDP/L)t, i is the capital productivity contribution (output per capital);
ßAln (L/K) = ßAln (L/K)t, i + ^[Aln (L/K)t, i]2
is the contribution of the labor deepening (labor per unit of capital);
ÀAln (ICT/L) = AiAln (ICT/K)t, i = k[A'n (ICT/K)t, i]2
is the contribution of the ICT intensity (ICT per unit of captial);
0Aln (HC/K) = ft Aln (HC/K)t, i = ft[Aln (HC/K)t, i]2
is the contribution of the human capital intensity (human capital per unit of capital);
ft, i is the residual term that proxies for TFP intensity (TFP per unit of capital) growth
(Aln (TFP/K)t, i); and,
A is the difference operator denoting proportionate change rate.
Since the intercept (a) has no position in the calculation of productivity growth rate indica-
tors, the equation becomes:
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INTERNATIONAL SOCIAL SCIENCE REVIEW 47
Sources of Data
Data for this study, which consists of rea
physical capital number of employment, rea
telephone lines per 1,000 persons, were colle
in the International Monetary Fund online d
the World Bank. The missing data is validate
databases, Asian Development Bank: Key
Countries, Statistical and Data Systems Divis
for the period 1965-2004. Due to the lack of
input index is constructed based on the num
Empirical Analysis
Import substitution industrialization (ISI) refers to an economic policy based on
principle that a developing country should try to replace products which it impor
mostly finished goods, with locally produced substitutes. The theory is comparable
concept of mercantilism in that it promotes high exports and minimal imports to in
national wealth. It is based on three basic premises: the adoption of a dynamic ind
policy to subsidize and arrange production of strategic substitutes, support of prote
trade barriers (tariffs), and a monetary policy that overvalues domestic currency (d
ation of national currency is often employed to facilitate exports). Not surprisingly,
substitution policies are opposed by advocates of free trade.51
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48 VOLUME 85, NUMBERS 1 & 2
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INTERNATIONAL SOCIAL SCIENCE REVIEW 49
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50 VOLUME 85, NUMBERS 1 & 2
1988-2004 1.79
2. Malaysia
1965-2004 4.92 1.28 1.31 6.31 1.11
1965-1987 6.92 2.58 2.50 7.00 1.53
1988-2004 2.32
3. Philippines
1965-2004 2.32 1.09 1.14 1.87 1.59
1965-1987 4.19 1.22 1.13 0.85 1.43
1988-2004 0.79
4. Singapore
1965-2004 2.32 1.30 2.00 2.00 1.33
1965-1987 4.20 1.95 6.71 3.64 1.83
1988-2004 1.79 1.74 6.91 4.24 1.98
5. Thailand
1965-2004 2.31 1.46 1.97 1.21 1.04
1965-1987 4.16 1.56 1.84 1.29 1.61
1988-2004 2.79 1.66 1.33 1.32 1.89
Conclusion
Few studies offer an empirical examination of capital productivity and related produ
tivity indicators. This study fills that gap in the literature by providing a statistical analy
in the first step of the estimation to attain the coefficients of the explanatory variables u
by an econometric approach. A second step that plugs the parameters of the variables i
the model to compute the growth rates of productivity indicators includes the calculat
of the residual of the model (TFP intensity) and other productivity indicators (e.g., cap
productivity, labor intensity, and ICT and human capital intensity) used in a growth
accounting approach.
The factors that determined capital productivity in ASEAN5 countries from an inte
sive growth-theory model are the individual contributions of labor per unit of capit
(deepening), ICT per unit of capital (intensity), human capital per unit of capital (int
sity), and the concurrent contribution of the quality of these factors expressed as the T
per unit of capital (intensity).
The results of this study confirm that whereas high capital input growth resulted in
capital productivity with insignificant technological progress experiences in ASEAN5
countries, labor intensity played a significant role in achieving light capital productivi
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INTERNATIONAL SOCIAL SCIENCE REVIEW 5 1
ENDNOTES
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52 VOLUME 85, NUMBERS 1 & 2
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INTERNATIONAL SOCIAL SCIENCE REVIEW 53
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54 VOLUME 85, NUMBERS 1 & 2
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INTERNATIONAL SOCIAL SCIENCE REVIEW 55
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