Human Capital and ICT per Capital Contribution to East Asian Productivity Growth

Article excerpt


The knowledge-based economy (K-based economy) is not confined to information and communication technology OCT) alone. Even before the evolution of ICT, knowledge was personified in human beings' "human capital" and technology. It was further embodied in capital investment undertaken by those countries associated with the so-called Asian miracle. This study examines the impact of capital productivity, labor, ICT, and human capital per unit of capital, or the total factor productivity (TFP) per unit of capital in the economies of five members of the Association for Southeast Asian Nations (ASEAN): Indonesia, Malaysia, the Philippines, Singapore, and Thailand (hereafter ASEAN5). Whereas high capital input growth resulted in low capital productivity with insignificant technological progress experiences in the economies of these countries, labor, ICT, and human capital per unit of capital played a significant role in achieving light productivity contribution to the growth of these economies through the use of huge inputs to produce output.

Literature Review

According to a report issued by ASEAN in 2003, there are both benefits and challenges in measuring and monitoring a digital economy driven by ICT. (1) The Organization 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 Lal 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-wide 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 collaboration 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, these governments must promote universal and affordable access to information and communications services. (4)

Much of the recent debate on the sources of economic growth in Asia has been strongly focused at the macro-level? Both Paul Krugman and Alwyn Young find that much of that growth has been driven by increases in capital intensity rather than TFP growth. (6) In addition, Kenneth Kraemer and Jason Dedrick, in their analysis of information technology (IT) investment in twelve Asian-Pacific countries representing different levels of economic development during the 1980s, show a significant relationship between growth rates in IT investment and both productivity and economic growth at the national level. Due to the limited data involved in that study, however, it was not possible to employ more sophisticated models that would control for the impact of other variables. Nevertheless, Kraemer and Dedrick were able to identify several factors that were strongly correlated with levels of ICT investment: GDP per capita, education levels, share of employment in the service sector, and level of IT infrastructure. (7) Unfortunately, none of these studies examine the effects of ICT on economic growth for a sample of ASEAN member states. This study attempts to fill this gap in the literature by exploring the contribution of ICT in the economic growth of the ASEAN5 countries and the extent of 'digital divide' among them.

According to empirical studies on economic growth, (8) after accounting for physical and human capital accumulation 'something else' generates the bulk of that growth in most countries. …


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