Productivity or Endowments? Sectoral Evidence for Hong Kong's Aggregate Growth*

Abstract

The present paper provides sectoral evidence that sheds new light on the current debate regarding the sources of growth of the East Asian miracle. We test both the productivity-driven and endowment-driven hypotheses using Hong Kong's sectoral data. The results show that most of the growth of the service sector is driven by rapidly-accumulating capital endowments, and not by productivity growth. In addition, productivity growth in the manufacturing sector is unimpressive. The manufacturing sector is revealed to be more labor intensive than the service sector and its growth is hindered by the reallocation of resources into the service sector as a result of the growth of capital endowments and imports. Overall, sectoral evidence supports the endowment-driven hypothesis.