The Singapore Economic Review

In 1979 the United States and China established normal diplomatic relations, allowing me to visit China and study the Chinese economy. After doing so for 30 years since and advising the government of Taiwan in the 1960s and the 1970s and the government of the People's Republic of China in the 1980s and the 1990s, this is an opportune moment for me to summarize the important lessons I have learned. The lessons will be summarized in four parts: on economic science, on formulating economic policy and providing economic advice, on the special characteristics of the Chinese economy and on the experience of China's economic reform.

At the beginning, I should comment on the quality of Chinese official data on which almost all quantitative studies referred to in this article were based. Chow (2006) has presented the view that by and large the official data are useful and fairly accurate. The main justification is that every time I tested an economic hypothesis or estimated an economic relation using the official data the result confirmed the well-established economic theory. It would be a miracle if I had the power to make the Chinese official statisticians fabricate data to support my hypotheses. Even if I had had the power, most of the data had already been published for years before I conceived the ideas of the studies reported in this article.

This paper investigates exchange rate and monetary policies over the business cycle in Taiwan. We first characterize the business cycle dynamics in Taiwan and identify foreign shocks as the main cause of any fluctuations. We then briefly review the exchange rate system and policy operating in Taiwan since the early 1980s. Finally, we investigate the current recession, and discuss how the Taiwanese government is dealing with the economic slowdown.

The purpose of this study is to examine the potential linkages among ASEAN-5 currencies, in particular the possibility of a Singapore dollar bloc during the pre- and post-crisis periods by using the Johansen multivariate cointegration test and the Granger causality test. Significant nonstationarity and the presence of unit roots were documented for each currency under both study periods. Using ASEAN-4 exchange rates against the Singapore dollar, the Johansen cointegration test showed that there was no cointegrating relationship during the pre-crisis period. However there were two statistically significant cointegrating vectors among ASEAN exchange rates for the post-crisis period. These findings imply that there is low financial integration before the crisis, but that ASEAN countries are financially more integrated after the crisis. This finding also indicates increasingly role of the Singapore dollar in ASEAN. Therefore, the Singapore dollar may be a possible candidate as the common currency for ASEAN. The analysis is repeated by adding the US dollar to the model. The finding ascertains the influence of the US dollar on ASEAN currencies before the crisis.

The paper empirically evaluates growth effects of real exchange rate misalignments in Pakistan for the flexible exchange rate period (1983Q1 to 2005Q4). First, real exchange rate misalignment is calculated as the deviation of the actual real exchange rate from its equilibrium value. It is found that the actual real exchange rate in Pakistan remained undervalued. Second, using the GMM estimation technique, it is found that undervaluation of the Pak-rupee has improved output growth in Pakistan and this result is robust to alternative growth equation specifications. The results also stress the role of other factors in determining output growth rate; particularly, capital per worker, democracy, corruption, human capital and deeper financial markets have the theoretical predicted signs and are statistically significant.

The necessity for governments to borrow in order to finance deficit budgets has led to the development of external debt. This study examines how the use of budget deficits as an instrument of stabilization leads to the accumulation of external debt with the attending effects on growth in Nigeria between 1970 and 2003. By synthesizing a relationship between budget deficits and external debt the study shows the implications on economic growth of conducting a fiscal policy within the contexts of debt stabilization and debt sustainability. The results of the econometric analysis confirm the existence of the debt Laffer curve and the nonlinear effects of external debt on growth in Nigeria. The study concludes that if debt-financed budget deficits are operated in order to stabilize the debt ratio at the optimum sustainable level debt overhang problems would be avoided and the benefits of external borrowing would be maximized.

The persistence of the graduate unemployment problem warrants the need for predicting factors that are associated with low employability graduates. It is found that ethnicity, English language proficiency and types of degree obtained are significant predictors of graduates' employability which is measured either by the number of days being unemployed or probability of being unemployed. Compared to the Tobit model, the Probit model which does not accommodate the right censoring bias is found to have less predictive power in terms of the number of days being unemployed.

In a small open economy, the retail sector adds value with a lag to existing production and uses existing domestic production as an input. Therefore, demand side dynamics depend on the wholesale prices of the domestic goods, the prices of the imported goods, the nominal exchange rate, the level of indirect taxes, the marginal cost of retail production and interest rates. Hence, this mechanism provides a theoretical basis for causality from wholesale prices to consumer prices. Being motivated by this causal transmission mechanism, this paper tries to examine the causal relationship between wholesale prices and consumer prices in a small developing economy like Pakistan. Empirical methodology uses recently developed tests for the existence of a long-run relationship between wholesale prices and consumer prices. Typically, in applied analysis, testing for the existence of cointegration and causality can only be carried out once the time series properties of the data have been established. For example, tests for cointegration require the variables to be integrated to the same order, typically I(1), prior to estimation. By eliminating the need for unit root pre-testing, the tests applied here considerably simplify the inference procedure. They also reduce the potential for distortions in the inference due to the unknown properties of the testing sequence. Our findings include robust evidence that, for Pakistan, there is a bidirectional causality between wholesale prices and consumer prices. Feedback impact shows that influences from the wholesale price index (WPI) to the consumers' price index (CPI) is stronger or dominating as compared to feedback from CPI to WPI supporting the Cushing-McGarvey (1990) hypothesis.

We develop an overlapping generation model to examine how the relationship between status concerns, fertility and education affect growth performances. Results are threefold. First, we show that stronger status motives heighten the desire of parents to have fewer but better educated children, which may foster economic development. Second, the government should sometimes postpone the introduction of an economic policy in order to maintain the process of economic development, although such a policy aims to implement the social optimum. Third, status can alter the dynamic path of the economy and help to explain the facts about fertility during the great transition.

Traffic congestion is becoming a problem all over the world and physical expansion of road networks is becoming not the best option due to cost and other reasons. This paper considers the option of a congestion pricing model and explains its rationale and parametric estimation. The case of a city is studied to reflect on the potential of data collection mechanisms and public participation and awareness.