Investigating the Reasons for the Difference in Total Factor Productivity Between East and West Asia with Emphasis on Institutions, Human Capital and Relative Backwardness

The trend of total factor productivity (TFP) and GDP growth per capita in most East Asian countries is upward and in most West Asian countries is downward or fluctuating. In this regard, this study seeks to investigate the reasons for the difference in TFP and consequently economic growth in East and West Asia. This study specifically analyzes the role of human capital, institutional factors, and relative backwardness in the productivity differences between East and West Asian countries for the period 2000-2019. The importance of this issue is that the main economic growth of countries occurs through the channel of total factor productivity and the study of factors affecting productivity can reveal the reasons for the growth of East Asian countries and the backwardness of West Asian countries. In this study, by forming two separate groups from East and West Asia, the model is estimated using the static GMM and the results for these two groups of countries are compared. The findings indicate that human capital, institutional factors, and distance to the technology frontier (DTF) are the most important reasons for the difference in productivity in East and West Asia. In most cases, human capital in East Asian countries has a positive effect on total factor productivity, while in West Asian countries it has no effect. The findings also show that institutional indicators in most cases in East Asian countries increase total factor productivity, while in West Asian countries do not have a significant effect on total factor productivity. A greater distance from the technology frontier (more relative backwardness) in West Asian countries than in East Asian countries leads to a further reduction in total factor productivity.