4. ECONOMIC DEVELOPMENT: A CHANGING FOCUS
4.1 Introduction
The large impact of TFP growth on economic growth (on average 56.5%) found in the previous section provides a sign that there were also other factors, besides physical capital, which were important for economic growth. However, because TFP growth is calculated as a residual, it is unclear which factors are captured by TFP growth. Whether this was technology, as was often assumed, or whatever other factor, could not be decided based on this evidence. This was less a problem in early development economics when development was looked upon as (lack of) physical capital accumulation (see for example Lewis 1955). As physical capital accumulation was inserted in the growth accounting exercise, the TFP growth could simply be interpreted as technological growth. Yet, with the rising importance of other, social, indicators such as health, literacy, and human capital, the growth of TFP could reflect the growth of these social indicators as well.
4.2 A classic view: GDP and physical capital
On the basis of per capita GDP data provided by Maddison (2003), we may conclude that the levels of per capita GDP were about equal in India, Indonesia, and Japan around 1800.
However, in the course of the nineteenth century they started to diverge. In 1890 Japan was already clearly ahead, having a gap in per capita GDP of 35% with Indonesia and 65% with
India (see figure 1.1). Indeed, figure 1.1 shows that from 1870 onward there was a strong divergence in per capita GDP between on the one hand Japan and on the other hand India and
Indonesia.4 This divergence accelerated after World War II. A second finding from figure 1.1 is that the Indian GDP is somewhat below the Asian average since as early as 1890. Although this gap closed slightly during the 1940s, mainly because India was far less hit by the War than most