GROWTH THEORY AND ACCOUNTING FOR GROWTH OF THE TAIWANESE ECONOMY

A growth accounting and an econometric exercise are used to provide insights into the evolution of the Taiwanese economy over the period 1966-96. The approach links the GDP function of a multiple sector neoclassical growth model to growth accounting and, subsequently to the estimation of the parameters of this function. The growth accounting results show that the contribution of total factor productivity (TFP) to growth in GDP averaged about 32 percent over the period, and this contribution increased as the economy approached its long-run equilibrium during the decade of the 1980s, with evidence of some departure during 1991-96. Growth in TFP increased output growth in industry and services while growth in skilled labor benefited all sectors. Growth in capital stock increased the growth of the industrial sector the most, followed by services, but the effect on agricultural output growth was negative. Growth in TFP and capital stock appear to have increased the capacity of the industrial and service sectors to pull resources from agriculture.