Explaining Economic Growth Gap between OPEC and East Asia: Shapley–Owen–Shorrocks and Oaxaca–Blinder Variance Decomposition Approach

The purpose of this study is to explain the factors affecting economic growth gap between OPEC and East Asia countries. For this, by using the Shapley–Owen–Shorrocks and Oaxaca–Blinder variance decomposition methods the causes of the economic growth gap between OPEC and East Asia countries were analyzed over the period 1996-2018.The results of the Shapley–Owen–Shorrocks decomposition revealed that in East Asia countries, institutional and policy variables(government consumption, inflation, rule of law, trade) and human capital explain 53.31 and 31.38 percent of economic growth fluctuations, respectively. In contrast, in OPEC countries institutional and policy variables and physical capital(investment, Fertility rate) explain 66.72 and 17.75 percent of economic growth fluctuations, respectively. According to the results of the Oaxaca–Blinder decomposition, about 43 percent of the economic growth gap between East Asia and OPEC countries is due to explained components(mainly rule of law, investment, human capital) and 57 percent due to unexplained components(mainly the return of Investment, human capital, inflation, rule of law). Accordingly, efficient use of factors in relation to their endowments has a more important role in explaining the economic growth gap of countries. A noteworthy point in this regard is the important role of institutional and policy variables. Since not only institutional and policy variables but also other variables such as human capital, fertility rate and investment are greatly influenced by governance, in order to promote economic growth in OPEC countries, including Iran, it is recommended that factors affecting good governance be seriously considered by policymakers.