Abstract
This minor dissertation performs a development accounting exercise to evaluate the effect of rapid globalisation in the post-1989 period for a sample of 115 countries and four developing regions, namely Sub-Saharan Africa, Latin America and the Caribbean, South Asia, and East and Southeast Asia. The empirical results show that total factor productivity (TFP), as opposed to factor inputs (physical and human capital), has become a more important determinant of cross-country differences in output per worker in 2014 relative to 1989. This result holds irrespective of whether the capital-labour ratio or capital-output ratio is used as a measure of physical capital intensity. For all four developing regions, TFP also increased in importance as a determinant of output per worker differences relative to the United States. For the full sample of 115 countries, there is, on average, evidence of catch-up in output per worker levels relative to the United States. Countries and regions that recorded increases in relative levels of factor inputs and TFP experienced higher levels of catch-up compared to countries and regions that recorded increases only in relative levels of factor inputs. Developing regions that industrialised across the rapid globalisation period also showed significantly higher levels of catch-up compared to developing regions that deindustrialised. The results predict that future catch-up will be driven, in large part, by TFP. The implication of this finding is that future catch-up might be more difficult to achieve due to the ‘unexplained’ nature of TFP relative to factor inputs. Anecdotal evidence shows a link between higher levels of industrialisation and positive relative growth in TFP. Developing countries and regions therefore should focus on increasing their industrial capacity in order to achieve greater levels of catch-up.
M.Com. (Development Economics)