Physical Capital Accumulation in Asia-12: Past Trends and Future Projections

Abstract

The pace of capital accumulation in East Asia has simply been stunning. In this paper, we investigate sources of this fast accumulation and make projections for the future to see if the trend is likely to continue. East Asian economies under consideration are the People’s Republic of China; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia, the Philippines; Singapore; Taipei, China; Thailand; and Viet Nam, including India and Pakistan from South Asia. We estimate a “convergence” equation for physical capital per capita, which is derived from an open economy growth model, using a pooled cross-country, across-decade sample of the entire world. Based on the estimation results, we decompose past growth in physical capital per capita of the emerging Asian economies. We also conduct projections for the next two decades and study determinants of the investment rate for those economies.