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April 27, 2005

Charlene Huang Criticizes Dani Rodrik

My undergraduate thesis student Charlene Huang takes aim in her draft at Dani Rodrik's assertion that East Asia's "favorable initial conditions"--specifically, a high initial level of human capital--helped fuel its extraordinarily rapid post-WWII growth:

East Asia is generally characterized as having high initial levels of human capital (Rodrik 1994, 1997).... Primary school enrollment rates circa 1960 are usually employed in ascertaining the human capital levels... what Rodrik uses in his parsimonious regressions of growth in East Asia on the level human capital and the distribution of income circa 1960, which leads him to conclude that favorable initial conditions, that is, high initial levels of human capital and low income inequality, can explain 80% of South Korea and Taiwan’s rapid growth (Rodrik 1994).

However, a country’s primary school enrollment rate circa 1960 is less of an "initial condition" than an indicator of the competence and success of public policy. It serves better as a reflection of the post-colonial government's commitment to education and human capital development than as an indicator of initial levels of human capital. A more appropriate indicator of the stock of human capital, and hence circumstances before the period of growth being studied, would measure the educational level of the working age population in 1960, rather than the percentage of children enrolled in primary school in 1960.

Barro and Lee’s data on the percentage of the adults over 25 years of age in 1960 who completed primary school is such an indicator. Operating on the reasonable assumption that primary education was generally completed by 15 years of age, this measure would only include adults in 1960 who received their education by 1950.

As colonization of Taiwan and South Korea ended with Japan’s defeat in 1945, and Malaysia, Singapore, and Indonesia were decolonized by the British and the Dutch in the 1950s, this is a much closer approximation of the human capital with which the HPAEs were endowed, rather than policy choices of their post-colonial governments, or post-war governments in the case of Japan and Thailand. The percentage of adults who completed primary school during the time of colonization is a better indicator of colonial legacy than the percentage of children who are enrolled in primary school under a new non-colonial government.

A comparison of primary enrollment ratios in 1960 and the Barro-Lee data on the stock of human capital in 1960 clearly illustrates the difference between these two measures. For example, although Singapore and Korea both have about 100% primary enrollment in 1960, the percentage of the adults over 25 years of age in 1960 who completed primary school was 26.2% for Korea, but only 5.6% for Singapore. It seems that Singapore’s British colonizers were not as interested in educating the masses, as was Lee Kuan Yew’s government.

Primary enrollment ratios, especially under post-colonial governments, may thus paint a very misleading picture of true initial conditions. And the initial-condition levels of human capital in East Asia are not so favorable when this more appropriate measure is used...

Posted by DeLong at April 27, 2005 07:03 PM