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Entreprenuership, technical progress and economic growth: A quantitative analysis of Hong Kong, 1991-2015

Cheng, Jonathan (2017) Entreprenuership, technical progress and economic growth: A quantitative analysis of Hong Kong, 1991-2015. Other thesis, Murdoch University.

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Abstract

Studies within the economics discipline have consistently treated productivity growth or total factor productivity (TFP) as the critical factor in generating economic growth (Solow, 1956, 1957; Swan, 1956; Jorgenson and Griliches, 1967; Harcourt, 2006; Taylor, 2007). The rationale and importance of technological progress in driving long-run aggregate output growth can be explained through the mechanism of the Solow (1956) Swan (1956) growth model. Utilising the Solow (1956) and Swan (1956) growth framework, the primary aim of this dissertation is to quantify the impact of technological progress, in the form of total factor productivity (TFP) growth, on Hong Kong’s aggregate output growth over the years 1991-2015.

The bulk of studies on estimating TFP growth on Hong Kong covered the period between the 1960s and the 1980s. Very little has been done after that. Hence, an update of Hong Kong’s TFP growth is long overdue. Above all, Hong Kong’s contemporary production structure resembles very little that of the 1960s-1980s period, where the bulk of the literature on Hong Kong’s TFP growth tends to be concentrated. Examining Hong Kong’s contemporary production structure, especially through the period 1991-2015, will make a useful and meaningful contribution to the current stock of knowledge about the economic growth of Hong Kong.

Over the period 1991-2015, on average, TFP contributed annually around 41.1 per cent to aggregate output growth. Based on the Solow-Swan growth framework, Hong Kong’s aggregate output for the period 1991-2015 was productivity driven and as such is sustainable. Although on an averaged basis TFP’s contribution to output growth was positive and significant, however on a year-to-year basis, TFP growth was found to be highly cyclical. A possible explanation to the cyclical nature of Hong Kong’s TFP growth can be found in the real business cycles analysis – in that economic downturns are periods of technological regress (Mankiw, 1989; Prescott, 1986). During the period 1991-2015, the estimated average elasticity of TFP growth with respect to aggregate output for Hong Kong, shows that for every one per cent increase in TFP growth resulted in 0.49 per cent increase in GDP growth.

While the Solow-Swan growth model postulates that technological progress as captured by TFP growth is the engine to sustainable economic growth, it does not provide a formal explanation on how technological progress comes about. Instead, technological progress is estimated from a residual, and hence it is treated exogenously. The real business cycles theory can only explains the relationship between the residual (TFP) and aggregate output growth. What is driving TFP growth has yet to be explained. The analysis found in Chapter Four suggests that human capital accumulation in the form of entrepreneurship could be driving Hong Kong’s TFP growth.

Publication Type: Thesis (Other)
Murdoch Affiliation: School Of Business and Governance
Notes: Research Masters with Training
UNSD Goals: Goal 8: Decent Work and Sustainable Economic Growth
Supervisor: Taylor, Ranald
URI: http://researchrepository.murdoch.edu.au/id/eprint/38889
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