Assessing the Sustainability of Economic Growth in South Asia: A Growth Accounting Perspective

Abstract

This study assesses the proximate sources of economic growth of South Asian economies and compares them with other Asian regions, particularly with Asian Tigers. Per capita GDP growth is decomposed into the components which are attributable to input accumulation, frontier shifting (innovation) and catch-up (technological diffusion) over the period 1960–2023. It employs the Malmquist Productivity Index, a DEA-based technique, to model the aggregate production frontier of the sample economies. The empirical results seem to indicate that unlike Asian Tigers, the per capita GDP growth of South Asian economies is entirely led by input accumulation, particularly by capital accumulation. The significant contribution of total factor productivity (TFP) growth to GDP growth is missing in the region, which is further exacerbated by the onset of COVID-19. Failure in technological diffusion (failure to catch up with the world technological frontier) and downward frontier shifting caused by bad economic policies are found to be the main hurdles on the path of TFP growth in South Asia. Therefore, the eventual capital-deepening diminishing returns, compounded with the failure in the diffusion of technology, casts shadow over the long-term prospects of economic growth and risks South Asia to fall in the middle-income trap.