##### Abstract

Summary

"Economic Convergence, The East Asia evidence" generally includes a theoretical and an empirical part..

Part one present the neoclassical growth model, i.e., the so-called Solow-Swan model. We start from simple form, growth model with exogenous saving rate, no technical progress.

As we know, Solow model is based on some assumptions, such as one-sector production, closed economy where output equals income, investment equals saving and constant rate of population growth and capital depreciation. Then further we examine the model's main properties like positive and diminishing marginal product, constant return to scale and so on. Then, dynamic equation for capital stocks, steady state, transitional dynamic and convergence hypothesis as main concepts discussed. Convergence as a key prediction of neoclassical growth model, is particularly important in this paper. On part two, in our empirical analysis, this hypothesis has a central role. This hypothesis simply says that each country eventually become as rich as all the others, the cross-section desperation diminishes over time. Furthermore we argue that this hypothesis can be true only if the economies are basically similar. It means that economies must have similar production functions and similar parameters. Such convergence is called absolute convergence. If there are different production functions and different parameters we would have conditional convergence. The key idea in conditional convergence is that an economy grows faster the further it is from its own steady state value.

After presenting the model in different forms, we consider some theoretical and empirical objections which related to this question: Is the neoclassical model a good theory of economic growth?

In section 4, I examine the neoclassical model with multiple capital goods. In this form, our model contains both physical and human capital which can explain better cross-country income data than the original Solow model could do that.

East Asian economic performance, in section 2.5, contains the summary of different points of views about economic success in East Asia. This discussion will be concentrated mainly on two points. First, we examine which factors have secured such high economic growth in the region. Second, we consider the differences among the countries within the region. Concerning the first issue, for instance, Alwyn Young (1998) argues in favour of labour-input and improving its quality as a main factor in East Asian's success. But, Dani Rodrik (1997) believes capital accumulation and total productivity have secured such high economic performance in East Asia. Concerning the second issue, economic performance within the region, Rodrik emphasises three factors, which discriminate between star and average-performance within the region: institutional quality, initial income and initial education. Empirical studies by Rodrik shows that these three variables can explain quite well the economic reality within the region. Moreover he believes institutional quality depends on initial income, education and ethno-linguistic fragmentation (ELF) in the region.

In part two, before to carrying out my own empirical analysis in East Asia, I present my econometric model. Here, after linear dynamic panel data model. I discuss the inconsistency of the least square estimator when T is finite. Then I present instrumental variables estimation method, which produce consistent estimators in our model.

Estimating the Solow growth model is the last main topic in this paper. Here, after presenting our model in stochastic form, I present estimates of the model using data for the East Asian countries. This empirical analysis considers both convergence between East Asia and some advanced economies in the world and convergence among East Asian economies.

Both graphic presentations and estimated results between East Asian and some advanced economies in the world do not indicate that these economies move to the same steady state value.

Therefore, we can conclude that absolute convergence does not apply for East Asia (as average) and some advanced economies like U.S., Germany and U.K.

But estimated results between "East Asian Tigers" economies and advanced economies clearly display that these economies tend to get the same steady state value. Graphic presentations also support such a tendency. Hence, we can claim that absolute convergence can be applied for these economies.

Then, I have done the same empirical analysis within the region. Empirical results indicate that absolute convergence among East Asian countries is weak. Further analysis shows that absolute convergence only for small group of these countries can be taking place. Thus, there is not a single economic performance in East Asian economies.

I have carried out my empirical estimations and graphic presentation by statistic computer program "STATA" version 6.