The Determinants of TFP Growth in Middle Income Economies in ASEAN: Implication of Financial Crises

Maintaining a sustained level of productivity growth is an important aspect of the economic development process, particularly in periods of economic turbulence. This paper examines the determinants of total factor productivity (TFP) growth and their behavior in five middle-income ASEAN countries during events such as the Asian Contagion and the Global Financial Crisis. In particular, this paper examines the effects on TFP of foreign direct investment (FDI), trade, the agricultural sector, government spending, human capital, and dummy variables representing the financial crises. The results show that trade, government spending, the scale of the agricultural sector, and the dummy variables have significantly influenced productivity growth. Government spending affects it positively, and the scale of the agricultural sector and the dummy variables representing the Asian Contagion influence it negatively. These empirical findings support the popular belief that trade significantly influences TFP growth, but the trend is not consistent with expectations. Despite strongly supportive theoretical arguments, this study does not find the human capital and FDI variables to be significant. Notably, there is no evidence to suggest that the Global Financial Crisis has had a significant influence when compared with the Asian Contagion.