The Use of Decomposition Methods to Understand the Economic Growth Gap between Latin America and East Asia

Beatriz Barrado, Gregorio Gimenez and Jaime Sanaú
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Beatriz Barrado: Faculty of Economics and Business Administration, University of Zaragoza, 50005 Zaragoza, Spain
Jaime Sanaú: Faculty of Economics and Business Administration, University of Zaragoza, 50005 Zaragoza, Spain

Sustainability, 2021, vol. 13, issue 12, 1-18

Abstract: Understanding how growth factors contribute to explaining the large differences in growth rates across countries remains an important research agenda. The common approach to exploring this issue is based on the use of multiple linear regression analyses. This work contributes to growth literature by applying a new perspective based on the use of variance decomposition procedures: Shapley–Owen–Shorrocks and Oaxaca–Blinder. These methodologies have four main advantages with respect to traditional methodologies: they make possible the quantification of the relative contribution of each factor to economic growth, they allow us to estimate the efficiency in the use of the endowments of each factor, they can be used with any functional form and they can be used with estimation methods that are robust regarding endogeneity issues. We illustrate these advantages by analyzing the causes of the economic growth gap between Latin America and East Asia over the period 1980–2014. We find that the economic growth divergence between the two regions can be primarily explained by the differences in institutions and physical capital. In addition, the results indicate that the higher East Asian performance is not only due to its higher levels of endowments in these factors, but also to the higher efficiency in its use. We connect our results with the 2030 Agenda for Sustainable Development.

Keywords: Latin America; East Asia; economic growth; sustainable development; investment; human capital; institutions; Oaxaca–Blinder; Shapley–Owen–Shorrocks (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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