The Long Run Growth Rate of the Kazakhstan’s Economy

Abstract

Kazakhstan’s economy has performed very well for almost the past decade – growing on an average annual growth rate of 9%. Furthermore, over this period there has been rapid increase in production in all the sectors of the economy. Can this economy continue to grow at such a high growth rate in the long run? The scanty existing literature on the topic suggests that growth is driven by exports from the extractive industry, while growth accounting studies on Kazakhstan’s economy reveal little contribution of total factor productivity to growth. In theory, the total factor productivity (TFP) growth rate and long-run growth rate, or the steady state growth rate are equal. Hence, we examine this premise because it is as interesting and useful as policy input. In investigating the long run growth rate, we used parametric (econometric) methods with extended production functions to include learning by doing throug trade (openness). We find the estimates of the TFP steady state growth rate to be around 3 percent. This study gives us better insight into the economic growth of the country, although with transitional economies like Kazakhstan’s, there are huge institutional changes.