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Trajectories to high income: comparing the growth dynamics in China, Korea, and Japan with cointegrated VAR models

Author

Listed:
  • Murach, Michael
  • Wagner, Helmut
  • Kim, Jungsuk
  • Park, Donghyun
Abstract
We analyze and compare the patterns of economic growth and development in China, Korea, and Japan in the post-war period. The geographical proximity and cultural affinity between the three countries, as well as the key role of the development state in the economies, suggest that an analytical comparison would be a meaningful and valuable exercise. Furthermore, Korea and Japan are two of the few economies that have jumped from middle income to high income in a short period and thus offer potentially valuable lessons for China. China is following a structural change that Korea and Japan underwent decades ago. We use Cobb--Douglas production functions to assess the long-run equilibrium relationships between per capita GDP, capital, and labor as well as the features of structural change by means of cointegrated vector autoregressive (CVAR) models. We show that such equilibrium relationships cannot be rejected for all three countries, while the evidence is stronger for China and Korea than for Japan. Our hypothesis tests show that the estimated Cobb--Douglas production functions display coefficients of capital and employment that sum up to one and broken linear trends that can be attributed to structural breaks and (changes in) total factor productivity (TFP) growth. We observe a striking similarity between the Korean and the Chinese experience, which gives some optimism that China may be capable of graduating to high income, like Korea.

Suggested Citation

  • Murach, Michael & Wagner, Helmut & Kim, Jungsuk & Park, Donghyun, 2020. "Trajectories to high income: comparing the growth dynamics in China, Korea, and Japan with cointegrated VAR models," CEAMeS Discussion Paper Series 16/2020, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS).
    • Handle: RePEc:zbw:ceames:162020
    DOI: 10.18445/20200206-102020-0
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    References listed on IDEAS

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    More about this item

    Keywords

    aggregate production function; comparative economic growth; China; Korea; Japan; economic development;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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