Human Resource Development for Knowledge-Based Economies and Its Implementation for Macao

Transcription

1 Human Resource Developmen for Knowledge-Based Economies and Is Implemenaion for Macao W. M. Cheong Research and Saisics Deparmen, Moneary Auhoriy of Macao Absrac Driven by he growing imporance of knowledge in producive aciviies, he world economy has undergone significan srucural changes. Knowledge is now recognised as he main driver of produciviy, economic growh and employmen, wih a focus on he role of informaion, educaion and learning. This paper reviews he framework of he knowledge-based economy (KBE) advocaed by inernaional organisaions, wih special aenion paid o characerisics and indicaors of human resource developmen (HRD) a core dimension of KBE. As a small and services-based economy lacking of naural resources, Macao would rely heavily on HRD for is coninuous prosperiy. By analysing relevan saisical daa and economic models, we porray he saus of Macao as a KBE from he HRD perspecive and assess economic impacs of knowledge on he SAR s growh and employmen

2 1. Inroducion Knowledge as an invisible producion inpu does no only propel economic growh, bu also faciliaes srucural change of an economy. As refleced in he world hisory of economic developmen, an advanced counry ypically sars from an agriculural economy in which land and oher naural resources are key producion resources. I hen ransforms ino an indusrial economy in which physical capial and labour are he main producion resources, and finally develops ino a knowledge-based economy (KBE) in which knowledge serves as a key producion inpu and a deerminan of susainable growh. In order o pain he developmen pah o a KBE, an analyical framework ha can be subsaniaed by relevan saisical indicaors is essenial. In his regard, a number of analyical frameworks have been advocaed by inernaional organisaions, while mos of hem have naurally reaed human resource developmen (HRD) as a core dimension of KBE. This paper aemps o inroduce he concep of KBE and explore is developmen in Macao, which has experienced remarkable economic advancemen and significan srucural change owards services producion in he pas decade. In 2011, he SAR s per capia gross domesic produc (GDP) reached USD66,000, a level comparable o or even exceeding mos advanced economies. 1 The dynamics of Macao growh is also noable by inernaional sandards. Beween 2002 and 2011, he SAR s real GDP grew annually by 13.8% on average and he growh momenum has no shown any weakening sign ill now. As a small and services-based economy lacking of naural resources, Macao would rely heavily on HRD for is coninuous prosperiy. Quesion of policy significance herefore arises in relaion o he exen ha such an ousanding growh record can be aribued o knowledge advancemen or HRD, which is widely regarded as a solid base for fuure growh of an advanced economy. 1 For example, GDP per capia of Japan and Germany were USD45,920 and USD43,742 respecively in 2011 according o he World Economic Oulook Daabase of he Inernaional Moneary Fund (April 2012)

3 This paper is srucured as follows. The nex secion presens he conceps of KBE, including is analyical framework and various dimensions, as advocaed by some inernaional organisaions. Our discussion will focus on HRD he core dimension of KBE wih specific reference o is characerisics and indicaors. Based on he framework oulined in Secion 2, Secion 3 examines a se of saisical indicaors for HRD in Macao. Comparable daa of oher advanced economies are presened for cross-counry comparison, which would help illusrae he developmen level of KBE for he SAR in relaive erms. Secion 4 explores economic impacs of HRD in Macao hrough he esimaion of growh in oal facor produciviy (TFP) under a simple Cobb-Douglas producion model and he analysis of changes in labour demand. Finally, Secion 5 concludes. 2. Lieraure Review Unlike oher economic resources, knowledge ofen has public good characerisics. Is feaure of increasing reurns o scale in producive aciviies also reveals is advanage and uniqueness. In a KBE, knowledge means more han purely echnological conens. I should diffuse ino culural, social and managerial specrums and exhibi he producion mode of knowledge-inensive across mos secors of he economy. The erm, KBE, was firs defined by he Organisaion for Economic Co-operaion and Developmen (OECD) as an economy which is direcly based on he producion, disribuion and use of knowledge and informaion (OECD 1996). Wih he rise of informaion sociey, knowledge has been increasingly codified and ransmied hrough compuer and communicaion neworks. Also required for his new era is aci knowledge, which covers he skills o use and adop codified knowledge and underlines he imporance of coninuous learning by individuals and firms. In a KBE, innovaion is herefore driven by he ineracion of producers and users in he exchange of boh codified and aci knowledge. To consruc a KBE framework of measurabiliy, he OECD sared o compile relevan saisical indicaors in Afer appropriae exension and modificaion, he OECD (2001) has incorporaed five broad elemens for a KBE:

4 i. A sable and open macroeconomic environmen wih effecively funcioning markes; ii. The diffusion of informaion and communicaions echnology (ICT); iii. Fosering innovaion; iv. Invesing in HRD, and; v. Simulaing firm creaion. The Asia-Pacific Economic Co-operaion (APEC) Economic Commiee (2000) argues ha in a KBE, producion, disribuion and use of knowledge are he main drivers of growh, wealh creaion and employmen. The inernaional forum pus forh he idea ha a knowledge-based sociey should no only embark on purely echnological knowledge bu also on culural, social and managerial knowledge. Correspondingly, an APEC framework has been developed under he projec Towards Knowledge-based Economies (APEC 2002). The aim of he projec is o provide he analyical basis useful for promoing he effecive use of knowledge, and he creaion and disseminaion of knowledge among APEC economies. Four dimensions, including innovaion sysem, HRD, ICT infrasrucure and business environmen form he basis of he APEC framework. The World Bank Insiue (WBI) has operaed a Knowledge for Developmen (K4D) programme since The WBI defines a knowledge economy as one ha uilises knowledge as he key engine of economic growh. I is an economy where knowledge is acquired, creaed, disseminaed and used effecively o enhance economic developmen. The four pillars of he WBI framework include (i) economic and insiuional regime, (ii) educaion and skills, (iii) informaion and communicaion infrasrucure, and (iv) innovaion sysem. The K4D programme has developed he Knowledge Assessmen Mehodology, which is an Inerne-based ool ha provides a basic assessmen of counries and regions readiness for he knowledge economy. The laes version of 2012 makes comparisons based on 148 srucural and qualiaive variables ha serve as proxies for he four pillars. All 148 variables are normalised on a scale from 0 (weakes) o 10 (sronges) while 146 counries are ranked on an ordinal scale

5 I is observed ha aside from offering definiions and specifying feaures of a KBE, he inernaional organisaions have esablished similar frameworks in measuring he level of developmen of a counry ino a KBE, which can be summarised in four key dimensions: i. HRD; ii. ICT; iii. Innovaion sysem, and; iv. Business environmen. Of which, HRD, or educaion and skills of he labourforce, is singled ou as a fundamenally and cenrally imporan dimension for a counry s developmen ino a KBE. In he absence of labourers capable of undersanding he new knowledge and puing i in usage, knowledge will no be fully assimilaed. Wider and deeper educaion is he key precondiion required o be fulfilled before oher aspecs ake off. Meanwhile, in order o presen a comprehensive picure of a key dimension of KBE, we examine a bundle of relaed characerisics. A characerisic is a qualiaive descripion of one aspec, while an indicaor is idenified o measure quaniaively he characerisic. Therefore, specific characerisics and indicaors are se up o reflec he qualiy and quaniy of individuals equipped o have access o and use of knowledge and informaion for producion in he economy. APEC (2002) makes an ineresing descripion of an idealis or fully developed KBE, Nikuda, and sudies he cases of four clusers of APEC economies. In he ideal case of Nikuda, HRD is a vial naional invesmen and a major responsibiliy of he governmen. Educaion is no resriced formally or informally by gender or income. The naional knowledge base is he key o susaining growh. In he workforce, a high proporion of people have compleed secondary educaion, possessed pos-secondary qualificaions and paricipaed in coninuing educaion. Lifelong learning is essenial since new knowledge, which renders many of he old facs obsolee, irrelevan and misleading, is coninually arising. The knowledge base is much wider han simply scienific or echnological, including informaion in managerial skills, marke condiions, language and so on. As a hreshold, he proporion of workers primarily engaged in knowledge work in differen economic

6 secors would be well above 50%. While he APEC creaes Nikuda as a concepual ideal for KBE, i broadly classifies APEC economies ino four groups in accordance wih heir GDP per capia, geographic locaion and economic hisory: i. Mos developed economies Japan, he Unied Saes, New Zealand, Ausralia and Canada; ii. High-performing Asian economies Souh Korea, Singapore, Chinese Taiwan, Hong Kong; iii. Fas-growing Asian economies Thailand, he Philippines, Malaysia, Indonesia, China, and Vienam; iv. Lain American economies Chile, Mexico and Peru. A se of quaniaive indicaors for HRD characerisics, mainly drawing reference from he cases of he firs wo groups, is chosen for assessing he saus of Macao s developmen ino a KBE in he nex secion of his paper. The indicaors ha cover five phases of knowledge flow acquisiion, creaion, disseminaion, use and invesmen, are shown in Table 1. Table 1: Characerisics and Indicaors for HRD Characerisics Indicaors Acquisiion Sock of skilled people Labourforce by educaional aainmen Creaion Graduaes in science-relaed fields Graduaes of pos-secondary educaion by field of sudy (science-relaed subjecs) Disseminaion Pervasion of inellecual capial Inerne users per 100 populaion Use Sock of knowledge workers Proporion of knowledge workers Invesmen Invesmen in inellecual asses Governmen expendiure in educaion 3. The Case of Macao Based on he framework esablished in he previous secion wih a focus on HRD, we evaluae by relevan saisics of he pas decade Macao s developmen owards a KBE and is saus as a KBE in relaive o oher advanced economies and a fully developed KBE

7 3.1 Knowledge acquisiion educaion aainmen Educaional aainmen fundamenally influences he level of knowledge and skills of he labourforce. Since 2000, he educaional aainmen of Macao s labourforce has improved coninuously (Char 1). Char 1: Labourforce by Educaional Aainmen, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% No schooling/ Pre-primary educaion Primary Junior secondary Teriary Source: Saisics and Census Service (DSEC). Senior secondary Unknown The sock of human resources wih eriary educaion as a percenage of he labourforce increased markedly from 12.6% in 2000 o 24.1% in Concurrenly, he proporion of senior secondary educaion grew by 11.8 percenage poins. On he oher hand, he percenage of no schooling/pre-primary educaion, primary educaion and junior secondary educaion posed respecive declines of 6.1, 11.2 and 5.9 percenage poins

8 3.2 Knowledge creaion graduaes in science-relaed fields Human resources in science-relaed fields 2 are linked o knowledge creaion, especially for hose economies wih major developmen in he ICT indusry. Their abundance generally indicaes he poenial flow of high-level echnical skills ino he economy, hough he level of significance would vary o some degree wih differen indusrial srucures. Table 2: Number of Graduaes of Pos-secondary Educaion by Field of Sudy, 2000/ /11 Field of sudy Number of graduaes 2000/ / / / / / / / / / /11 Toal 2,277 2,194 2,237 2,743 3,265 3,698 3,941 4,559 4,932 5,433 5,804 Teacher raining and educaion science Ars Humaniies Social and behavioural science Journalism and informaion Business and adminisraion ,124 1,299 1,387 1,600 1,709 1,930 2,252 Law Physical sciences* Mahemaics and saisics Compuing / informaion echnology* Elecronics and elecommunicaions* Manufacuring Archiecure and building Mechanics, energy and chemical engineering* Healh* Social services Personal services ,044 1,172 1,265 Environmenal proecion Securiy services Science relaed (%) Noes: 1. *Science-relaed fields of sudy. 2. Daa include foreign sudens sudying in Macao s eriary insiuions. Source: DSEC. In he academic year 2010/11, here were 10 insiuions recognised by he SAR Governmen offering pos-secondary educaion. 3 The number of people acquiring pos-secondary educaion would posiively affec he knowledge base of he 2 According o he repor on Hong Kong as a Knowledge-based Economy A Saisical Perspecive (2009) compiled by Hong Kong s Census and Saisics Deparmen, science-relaed fields normally refer o naural sciences, engineering & echnology and medical sciences, including physical sciences, compuing/informaion echnology, mechanics, energy and chemical engineering, healh and elecronics and elecommunicaions majors. 3 The levels of pos-secondary educaion include docoral degree, maser s degree, pos-graduae diploma, bachelor degree and associae degree/diploma

9 workforce. The oal number of pos-secondary graduaes was jus around 2,300 in 2000/01. I sared o pick up in 2003/2004 and reached 5,800 in 2010/11, 154.9% up from 2000/01. Analysed by field of sudy, graduaes majoring in science-relaed subjecs consiued 10.0% of he oal graduaes in 2010/11. Their proporion dropped markedly by 15.6 percenage poins from 25.6% in 2000/01 hough heir absolue number did no winess any significan shrinkage during he period. The larges proporion of graduaes belonged o he field of business adminisraion which saw heir share grow from 32.7% in 2000/01 o 38.8% in 2010/11. The second larges group was personal services (including ourism, gaming, hoels, ec.), surging from only 6.9% in 2000/01 o 21.8% in 2010/11. The economic srucure of Macao is disinc wih gaming and ourism as a highly dominan indusry. Therefore, undersanding he labour demand of ourism-relaed corporaions is essenial for inerpreing HRD in he SAR, especially in he aspecs of educaion and skills. According o he Survey on Manpower Needs and Wages of he gaming secor for he second quarer of 2012, 35.2% of he vacancies required educaion aainmen of senior secondary or higher. Only 2.1% required professional qualificaion. On he survey of he hoel and resauran secor for he firs quarer of 2012, 68.9% required only educaion aainmen of junior secondary or lower. Language skills were mos needed wih 58.7% for knowledge of Mandarin and 41.9% for English. However, for proper economic diversificaion, he SAR Governmen has promoed he developmen of MICE 4, Chinese medicine, educaion, as well as culural and creaive indusries. Pos-secondary insiuions have accordingly launched relaed academic programmes for specialiss in hese argeed indusries. 5 Neverheless, he fuure growh of graduaes majoring in science-relaed subjecs would ulimaely depend on 4 MICE refers o Meeings, Incenives, Convenions and Exhibiions. 5 For example, he Macau Universiy of Science and Technology has developed is Faculy of Chinese Medicine since is esablishmen in The Insiue of Chinese Medical Sciences of he Universiy of Macau has offered higher-degree programmes in Chinese medicine in recen years. For he culural and creaive indusry, he Macao Polyechnic Insiue has offered diploma and degree programmes in design, visual ars and music. The Insiue has also launched Chinese-English ranslaion and Chinese-Poruguese ranslaion programmes o suppor HRD in he MICE indusry

10 he exen for he SAR o diversify is economy, and hence is abiliy o creae knowledge. 3.3 Knowledge disseminaion Inerne usage Inerne proves o be a powerful device for knowledge ransmission and communicaion, and hence universal access o his echnology provides a producive environmen for knowledge flow. Educaional maerials a all levels can be made available a websies, and he low-cos and imely sharing of knowledge is a disinc advanage of Inerne. Char 2: Number of Inerne Subscribers per 100 Populaion, (Number per 100 populaion) Source: Underlying daa from he DSEC. The Inerne service in Macao was developed in a relaively laer period albei a a fas pace in he pas decade. In 2000, he number of Inerne subscribers per 100 populaion was jus 6.3, bu in 2011, he raio jumped o According o he DSEC s repor on Usage of Informaion Technology (2010), he users of Inerne were concenraed in populaion of he age group and wih senior secondary or eriary educaional aainmen

11 3.4 Use of knowledge knowledge workers The proporion of knowledge workers in he labourforce is one measure of he knowledge-inensiy of he economy, while he level of knowledge and skills required for workers can be refleced in heir occupaion. In a sric sense, knowledge worker refers o he one whose work lies primarily in managemen and wih a srong requiremen for specialised knowledge. In a broad sense, we can classify knowledge workers as hose whose occupaions are repored o he Inernaional Labour Organisaion (ILO) as falling ino one of he following caegories: (i) managers and senior governmen officials, (ii) professional workers, and (iii) associae professionals under he ISCO 88 classificaion (Inernaional Sandard Classificaion of Occupaions). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Char 3: Employed Populaion by Occupaion, % Legislaors, senior officials of governmen and associaions, direcors and managers of companies Professionals Technicians and associae professionals Clerks Service and sales workers Crafsmen and similar workers Plan and machine operaors, drivers and assemblers Unskilled workers and ohers Source: DSEC. As shown in Char 3, he proporion of he employed populaion who worked as

12 professionals rose marginally from 3.1% in 2000 o 3.7% in The proporion of workers who were echnicians and associae professionals increased 0.7 percenage poins. In line wih he rapid change in indusrial srucure owards ourism and gaming, he share of clerks including casino dealers surged 8.5 percenage poins o 27.6% in Concurrenly, he proporion of unskilled workers grew marginally by 0.3 percenage poins o 18.0% in 2011, while hose of "crafmen and similar workers" and "plan and machine operaors, drivers and assemblers" dropped 3.5 and 8.1 percenage poins respecively. Overall, he proporion of knowledge workers in Macao has winessed a sligh improvemen from 17.9% in 2000 o 18.0% in Invesmen in HRD The governmen srengh for promoing HRD can be refleced in he amoun of public-secor expenses on educaion as well as he relaive proporion o GDP and o oal governmen expendiure. In 2011, educaion accouned for 17.8% of oal governmen expendiure, represening around 2.8% of he GDP. The expendiure on educaion, afer adjused for CPI inflaion, surged 335.1% from 2002, while he average annual growh rae was 18.2%. Is raio o GDP rended up, albei a a gradual pace, from he lowes of 1.6% in 2004 and 2005 o 2.8% in Concurrenly, he share of educaion in he oal governmen expendiure dropped from 16.3% in 2002 o 13.0% in 2009 bu rebounded o 17.8% in

13 Char 4: Governmen Expendiure on Educaion, (10 6 MOP) (%) 8,500 7,500 6, , , , , , Educaional expendiure afer CPI adjused Percenage of governmen expendiure Governmen expendiure on educaion as a raio o GDP 0 Sources: Underlying daa from he DSEC. 3.6 Comparison wih oher economies We conduc a cross-economy comparaive sudy wih an aim o illusrae he SAR s relaive posiion in HRD. Economies in Groups (i) and (ii) classified by he APEC, as menioned in Secion 2, are seleced in consisen wih heir sage of economic developmen for proper comparison. The choice of indicaors of he sampled economies, however, is consrained by heir availabiliy, and hence due o he daa limiaion, no all he aspecs of HRD can be examined. The principal sources of non-macao daa are inernaional organisaions such as he Inernaional Labour Organisaion (ILO), Unied Naions Educaional, Scienific and Culural Organizaion (UNESCO), he OECD and he World Bank. The daa are colleced under similar, hough no necessarily sricly idenical, crieria and resricions

14 Table 3: HRD Indicaors of Seleced Economies Canada Ausralia U.S. Japan Korea Singapore Hong Kong Macao 1) Percenage of labour force by educaional aainmen, Level X Level Level Level Level ) Percenage of graduaes of eriary educaion by field of sudy, Educaion n.a n.a Humaniies and Ars n.a n.a Social science, business and law n.a n.a Science n.a n.a Engineering, manufacuring and consrucion n.a n.a Agriculure n.a n.a Healh and welfare n.a n.a Services n.a n.a Unspecified n.a n.a ) Inerne users, 2011 % of users of populaion ) Percenage of knowledge workers, Level ) Governmen expendiure in Educaion, % of oal governmen expendiure % of GDP Noes: 1. According o Inernaional Sandard Classificaion of Educaion (ISCED) 1997, he following levels represen: X-1: No schooling, pre-primary and primary educaion; 2: Junior secondary educaion; 3: Senior secondary educaion; 4-9: Teriary educaion and above. For Japan, he figures refer only o persons graduaed from school, separaed ino wo groups: Levels 1-3. Levels The reference year for Hong Kong is 2006, Ausralia 2008 and Korea According o ISCO-88, Inernaional Sandard Classificaion of Occupaions: Level 1= Legislaors, senior officials and managers; Level 2= Professionals; Level 3= Technicians and associae professionals; Level 4 = Clerks. 4. The reference year for Canada on governmen expendiure in educaion as % of oal governmen expendiure is Sources: LABORSTA, ILO; UNESCO Insiue for Saisics; Inerne world sas, hp:// The World Bank. On educaion aainmen, he raios of economically acive populaion wih senior secondary educaion or above were 99.9% in Japan, 90.8% in he US, 86.5% in Canada and 72.7% in Ausralia in he year The raios of he high-performing Asian economies were above 70%. The comparable raio in Macao was 48.1%, which was he lowes among he seleced economies. Analysed by field of educaion, he raio of pos-secondary graduaes who were majoring in science-relaed subjecs in Macao was also he lowes among he seleced economies. As menioned above, i should be parly aribuable o he disinc demand in he job marke under he

15 concenraed economic srucure of Macao bu could be a poenial consrain on knowledge creaion in he long run. On knowledge disseminaion, peneraion of Inerne users in Macao was relaively low. On applicaion of knowledge, he proporion of workers primarily engaged in informaion work would be over 50% in a fully developed KBE as saed in Secion 2. I is shown in Table 3 ha he proporions of knowledge workers represened by Levels 1-3 normally exceeded 40% in developed counries. Singapore had he highes proporion of 51.0% as he ciy sae has esablished iself as a regional cenre for financial and business services. The raio of Macao was comparaively low wih clerks accouning for he larges proporion of he workforce. On invesmen in HRD, he raios of educaion expenses in advanced counries were higher han ha of Macao in GDP (2.2%) bu lower in oal governmen expendiure (14.0%), excep for Hong Kong (23.0%), Korea (15.8%) and Singapore (15.3%). 4. Economic Impacs Knowledge is believed o drive economic growh paricularly in developed economies. The previous secion shows ha HRD in Macao winessed visible improvemens in he pas decade, ye sill backward compared wih he level of oher advanced economies. The issue of policy significance ha follows is wheher knowledge has played a vial role in explaining he excellen performance of economic growh in he pas. One way o rack he influence of knowledge is o measure is effec on produciviy. In a KBE, knowledge would enhance improvemens in echnology, greaer innovaive capabiliy, skilled workforce, and ulimaely produciviy. Meanwhile, he move owards a KBE is likely o lead o observable changes in he demand for manpower of various educaion aainmens and hence reflecs in he employmen siuaion of labourforce wih differen levels of educaional aainmen. 4.1 Oupu and produciviy

16 Growh accouning is a model used o measure he conribuion of differen facors o economic growh and o indirecly compue he rae of echnological progress, measured as a residual, in an economy. This classical mehodology was inroduced by Rober Solow in Growh accouning decomposes he growh rae of an economy's aggregae oupu ino (i) ha is due o increases in he quaniy of producion facors such as capial and labour and (ii) ha canno be accouned for by observable changes in facor uilisaion, which is known as oal facor produciviy (TFP). TFP reflecs he efficiency and effeciveness wih which he facors of producion are joinly used for producion of goods and services. I includes all of he qualiaive elemens ha enable exising producion resources o be used more efficienly and effecively o produce exra oupu per uni of facor inpu. Examples of elemens of TFP are inroducion or upgrading of echnology, innovaion, beer managemen echniques, gain from specialisaion, as well as improvemen in workers educaion, skills and experience, which are closely relaed o he key dimensions of KBE described in his paper. In calculaion of TFP, he sandard Cobb-Douglas producion funcion is uilised: Y α α K L = A K L (1) where Y = real GDP; A = TFP; K = physical capial sock; L = labourforce; α K = capial share in oupu; α L = labour share in oupu; = ime period. Taking logarihms and differeniaing, we obain he following growh accouning equaion: dy Y dk dl da = α K + α L + (2) K L A Equaion (2) shows ha he growh of real GDP can be decomposed ino he conribuion of growh in physical capial sock, growh in labourforce and TFP

17 growh. In he curren sudy, labour is calculaed wih he number of employed persons and heir median work hours. To esimae he physical capial sock, we apply he sandard perpeual invenory mehod (PIM). In he sandard exogenous growh model, he ype of equilibrium sudied is one of balanced-growh. In he balanced-growh equilibrium, he capial inensiy of he economy, i.e. is capial sock divided by is oal oupu or he capial-oupu raio, is assumed o be consan (Kwan and Mak 2008). The sylised fac of growh ha he capial-oupu raio is consan in seady sae can be expressed as: K Y K = Y 1 1 = K Y * (3) The PIM can be represened by: K ( δ + I (4) = 1 ) K 1 Dividing Equaion (4) byy becomes: K K ( 1 δ ) Y Y = 1 Since Y = ( 1+ g) Y 1, subsiuing he seady sae relaion from Equaion (3) generaes: * K I (1 + g) (6) = Y Y ( g + δ ) + I Y (5) where I = real invesmen; g = real GDP growh rae; δ = depreciaion rae. By applying Equaion (6), he capial-oupu raios for each year are esimaed. The iniial capial sock can be esimaed by muliplying he real GDP wih he average capial-oupu raio in he reference period. The iniial capial sock is hen subsiued in Equaion (4) o calculae he levels of capial sock in he subsequen years. Furhermore, we assume a depreciaion rae of 8%, and he level of invesmen

18 is he gross fixed capial formaion in GDP accouning. In calculaion of TFP growh, we adop he esimaes of Kwan and Mak (2008) regarding he inpu shares of capial and labour in he aggregae oupu. The capial share in producion is assumed o be ( α ) while he labour share is assumed o be ( α ). 6 L K In oher words, if here is a 1.0% increase in physical capial sock, oupu will increase by 0.797%. Similarly, a 1.0% increase in labour leads o a 0.210% increase in oupu. We hen plug in he elemens and he respecive shares in Equaion (2) o esimae he annual growh of TFP. Table 4: Sources of Growh of Macao, Year Annual growh (%) (i)gdp (ii)capial Conribuions (%) (iii)labour (iv)tfp (2.1) -0.1 (-0.7) (6.7) -0.2 (-0.8) (11.0) 1.7 (8.2) (19.9) 1.5 (7.3) (25.0) 2.2 (10.3) (24.7) 2.1 (10.2) (14.4) 1.8 (8.5) (5.2) -0.6 (-2.7) (2.5) 0.2 (1.1) (3.7) 0.8 (3.6) (11.0) (4.5) 2.3 Noe: (i) is equal o he sum of (ii), (iii) and (iv) according o Equaion (2). Annual growh raes of labour and capial are presened in parenheses. Source: Underlying daa from he DSEC. Table 4 reveals he annual growh raes of GDP, and he conribuions of producion inpus capial, labour and TFP. Regarding labour and physical capial sock, he compound annual growh raes for he reference period were 4.5% and 11.0%. When compared wih 2002, labour increased 53.8% and capial sock surged 183.1% in The liberalisaion of he gaming indusry and he corresponding upsurge in foreign direc invesmen would help explain he marked growh in capial sock. 6 Gaming and ourism is he leading indusry of Macao. Inensive capial invesmen, including he consrucion of hardware faciliies like complex enerainmen buildings, should conribue significanly in he iniial sage of developmen. Consequenly, capial assumes high weigh in he calculaion of TFP in his paper

19 Concurrenly, TFP refers o he combinaion of inangible producion facors. Is compound annual growh rae in he observed period was 2.3%, in consisen wih he resul of Kwan and Mak (2008) a a low single-digi average growh for he period Negaive TFP growh raes were winessed in while he GDP growh during he period was aribued o he inensive increase in he quaniy of producion inpus. On he oher hand, he conribuion of TFP o he overall economic growh in 2010 and 2011 was esimaed o be obvious. 4.2 Employmen The unemploymen rae of he labourforce by educaional aainmen is shown in Table 5. The unemploymen rae echoes he change in demand for labour in he las decade, represening he growing imporance of knowledge in he economy. Year Table 5: Unemploymen Raes by Educaional Aainmen, Toal No schooling/ Pre-primary Primary educaion Secondary educaion Teriary educaion educaion Junior Senior Source: Underlying daa from he DSEC. The rae of unemploymen for persons wih eriary educaion was he lowes, down from 3.5% in 2001 o 1.9% in 2011, 0.7 percenage poins lower han he overall raio in The group wih he highes unemploymen rae was ha wih "no schooling/pre-primary educaion", wih an average rae of 6.3% in he observed period and a rae of 4.8% in The group wih he second highes rae was he labourforce wih primary educaion, showing an unemploymen rae of 3.4% in

20 Conclusion Knowledge has risen o be an imporan engine of growh in developed economies. Following he remendous advancemen in he pas decade, Macao has been in he league of developed economies by he sandard of per capia GDP. As revealed by he developmen hisory of mos advanced economies, knowledge conens in human resources and producion will hold he key o he fuure, susainable developmen of he Macao economy. In recogniion of he imporance of knowledge, he SAR Governmen has sepped up is effor in promoing HRD in recen years. Correspondingly, he local labourforce has winessed a consisen enhancemen in educaion and skills. This paper represens he firs aemp o assess he curren saus of Macao as a KBE from he HRD perspecive, based on he analyic framework advocaed by inernaional organisaions. The SAR Governmen s expendiure on educaion has risen significanly in value in recen years and represened a comparaively high proporion o oal public expenses, ye is raio o GDP is relaively low. In he observaion period, he number of graduaes of pos-secondary educaion has increased a a fas pace, and as a resul, he educaional aainmen of he labourforce has generally improved wih a higher proporion of workers, especially he younger ones, aaining secondary and eriary educaional levels. Probably due o he high dominance of he gaming and ourism indusry in Macao s economy, he proporion of sudens majoring in science-relaed subjecs has plunged, hough he absolue number has seen lile change. Furher developmen in his knowledge-creaion aspec, however, would largely depend on he degree of economic diversificaion, which is now he prime policy objecive of he SAR Governmen. We have observed encouraging signs in HRD in he SAR. However, in comparison wih high-performing Asian economies and advanced economies, Macao sill lags behind in he five phases of knowledge flow, namely acquisiion, creaion,

21 disseminaion, use and invesmen. In order o assess he impac of knowledge on economic growh, we apply he TFP concep of he simple Cobb-Douglas producion model. Our esimae of Macao s TFP shows a non-saionary or highly volaile TFP growh paern, which rules ou any conclusive assessmen. Convincing evidence in our esimaion is absen in supporing he argumen ha knowledge has become a key engine of growh in Macao. This unsaisfacory resul migh be aribued o he shor series of daa and he rapid srucural change in he economy wihin a shor period of ime under invesigaion. I, however, echoes our saisical analysis of he five phases of knowledge flow ha furher improvemen is desirable for long-erm, susainable growh of he SAR o be qualified in he league of developed economies. Concurrenly, i is observed ha Macao has been moving in a direcion ha job seekers wih low educaional aainmen are more likely o say unemployed. Such a rend is a sympom of evoluion owards a KBE, and indicaes ha he marke would funcion o some exen o promoe educaion and hence Macao s developmen ino a KBE. From a policy perspecive, an increase in proporion of knowledge workers would also help ackle he issue of income disribuion, which has increasingly become a public concern in he fas-growing Macao economy

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