Appendix I. Some Applications of the Production Function Approach in South and East Asian Economies
Appendix II: Estimating Potential Output
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The author would like to thank Charles Kramer, Olin Liu, Peter Berezin, Marta Ruiz Arranz, Hiroko Oura, seminar participants at the Central Bank of Sri Lanka, and participants at an Asia and Pacific Department seminar for helpful comments and suggestions. Nong Jotikasthira provided editorial help.
Poverty incidence in Sri Lanka is estimated at 23 percent in 2002. For rural areas, the incidence is even higher at 30 percent compared to 8 percent in urban areas. Though poverty incidence has fallen across areas between 1995/96 and 2002, it still remains high.
These refer to central government debt in Sri Lanka, Nepal, and Bangladesh and general government debt in India.
These are educational attainments of employed persons as measured in Sri Lanka’s Labour Force Survey (Department of Census and Statistics, 2005). These are below grade 5 (representing roughly 25 percent of total employed persons); grades 5–9 (roughly 45 percent of total); GCE (O.L)/NCGE (roughly 16 percent of total); and GCE (A.L)/HNCE (roughly 14 percent of total). For educational attainment at grade 5, the number of years of schooling is six; at grades 5–9, the number of years of schooling is ten; at GCE (O.L)/NCGE, the number of years of schooling is eleven; and at GCE (A.L)/HNCE, the number of years of schooling is sixteen.
The parameter derived for β was below 0.1, but 0.1 was used since the estimation is highly dependent on less reliable data for human capital and the real wage in Sri Lanka. Also, results do not vary much if β of less than 0.1 is used. Also, results based on a production function using parameters from studies in other economies in the regional provide another good robustness check of the results and the sensitivity of estimates of TFP to different parameters (sensitivity analysis is presented later in this section).
This assumes that real wages of skilled employees have generally been growing in a similar manner as real wages of the rest of the labor force.